Do current regulatory frameworks in the EU support innovation and security of supply in electricity and gas infrastructure? : country report : Hungary.
Date: 2019-05-17
Institutions: Directorate-General for Energy
Subjects: Hungary, electrical energy, electricity supply, energy grid, energy storage, energy supply, energy technology, gas, gas supply, innovation, investment, renewable energy, report, safety standard, security of supply

Do current regulatory 
frameworks in the EU support 
innovation and security of 
supply in electricity and gas 
infrastructure? 
Country Report - Hungary 

March– 2019 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Directorate-General for Energy 
Directorate B — Internal Energy Market 
Unit B.1 — Networks & Regional Initiatives 

Contact: Henriette Nesheim 

E-mail: Henriette.NESHEIM@ec.europa.eu 

European Commission 
B-1049 Brussels 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Do current regulatory 
frameworks in the EU support 
innovation and security of 
supply in electricity and gas 
infrastructure? 

Country Report - Hungary 

Authors:  Robert  Haffner,  Laura  Heidecke,  Harry  van  Til,  Karolina  Ryszka  (Ecorys), 
Wolfgang  Fritz,  Alexander  Ladermann,  (Consentec),  Emiliano  Catalini,  Søren  Løvstad 
Christensen, Frederik Roose Øvlisen (Ramboll), Gordon Downie, Samuel Hall, Liz McRobb 
(Shepherd & Wedderburn), Hans Auer (TU Wien), Leigh Hancher 

March 2019 

Directorate-General for Energy 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Luxembourg: Publications Office of the European Union, 2019 

ISBN: 978-92-76-03998-3 
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Reproduction is authorised provided the source is acknowledged. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

TABLE OF CONTENTS 

EXECUTIVE SUMMARY ................................................................................................... 7 

1. 

2. 

INTRODUCTION .................................................................................................... 9 

ELECTRICITY ....................................................................................................... 11 

3.  GAS .................................................................................................................... 27 

ANNEX I: TYPOLOGICAL INVESTMENTS – ELECTRICITY .................................................... 43 

ANNEX II: TYPOLOGICAL INVESTMENTS – GAS ............................................................... 45 

ANNEX III: POTENTIAL REGULATORY BARRIERS FOR PROJECTS ........................................ 47 

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 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

EXECUTIVE SUMMARY 

Assessment of the NRF and the regulatory practice of the electricity sector in 
Hungary 

The electricity NRF in Hungary 

The general regulatory principle can be described as a combined model of Incentive-based 
Regulation and Cost-plus. Within the legal analysis, we have identified a strong emphasis on a 
least cost principle, which is unclear whether this encourages or discourages innovation. In the 
NRF, we found no statutory duty for the TSO to innovate, which was confirmed by the 
interviewees. However, the TSO's network development principles do include a duty to examine 
the possibility and necessity of introducing new technical solutions that have not yet been 
applied.  

Generally, the NRF is neutral regarding project categories, such as innovative or conventional, 
PCI or non-PCI. The regulation should ensure that the TSO operates effectively and efficiently. 
So, if project costs are reasonable, and the necessity and the benefit can be demonstrated, an 
investment will be approved by the NRA. 

The regulatory practice in the electricity sector in Hungary 

Interviewees from both TSOs and the NRA were generally satisfied with the NRF in Hungary.  

Yet, they also recognize a few of the regulatory barriers mentioned in annex III, even though 
the barriers are not said be a significant issue in practice: 

• 

• 

“Higher TSO CAPEX but lower expected OPEX within the TSO”: interviewees can imagine 
this type of barrier occurring, because currently there is no mechanism in the NRF to 
include life time costs of solutions; 
“Lower TSO TOTEX but shift in the CAPEX/OPEX ratio”: Possibly a bias towards CAPEX 
exists, but currently no OPEX intensive projects are planned and usually there is a focus 
on CAPEX during the approval process.  

Generally, the NRF encourages the TSO to always use the most cost-effective technology but 
some interviewees name uncertainties on how to determine these costs, as they are not 
necessarily the smallest investment cost. Therefore, it could be considered to overcome this 
issue by applying an adapted ENTSO-E TYNDP CBA. Currently, as far as we know no CBA is used 
in the NDP. Also, detailed definitions could be added in the NRF, e.g. for cost-benefit relations 
within CBA or cost types in terms of what is the most efficient cost. 

Options for improvement 

Although the NRF seems well-designed for security of supply and innovation, using the issues 
drawn from the above discussion, the following options for improvement could be applied: 
(i)  Favouring of OPEX-based solutions; 
(ii) Statutory obligation to consider alternatives; 
(iii) Statutory reference to innovation; 
(iv) Cost benefit analysis. 

Option (i) could be implemented by using legal powers already available to the NRA or others 
under the existing NRF but it may not be easy to implement this in a well-balanced manner. 
This option risks being be a technology-specific incentive which may not necessarily lead to 
efficient decisions and may even encourage abuse. This risk must therefore be carefully weighed 
against the effort of necessary changes to the law that are needed to implement the other 
options. 

Assessment of the NRF and the regulatory practice of gas sector in Hungary 

The gas NRF in Hungary 

The general regulatory principle can be described as an Incentive-based Regulation containing a 
mixture of price cap, revenue cap and quality regulation. Similarly, to the electricity sector we 
have identified a strong emphasis on a least cost principle, which is unclear whether this 
encourages or discourages innovation. In the Hungarian jurisdiction, we have found no direct 
duty to innovate but it may be argued that there is an implied duty to do so due to the general 

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in electricity and gas infrastructure? 

statutory duties of operating in an efficient, economic and effective manner. Also, the NRA has 
no explicit statutory power to encourage innovation. 

One task of the TSO is to monitor capacity across the gas network to ensure security of supply. 
Also, the TSO is obliged to prepare and submit to the NRA for approval a development plan for 
the transmission system to guarantee security of supply for the following 10 calendar years. If 
the plan is non-compliant with security of supply goals or EU energy policy, contrary to law or 
restricts competition the NRA will request changes from the TSO. The plan is revised on an 
annual basis. Furthermore, the NRA checks the compliance against the EU-wide development 
plan. If an investment is regarded as a “project of crucial interest to the national economy” and 
meets certain statutory criteria, it can be excepted from some administrative rules. 

The regulatory practice in the gas sector in Hungary 

The interviewees were generally satisfied with the NRF regarding support of security of supply 
and ‘innovative’ projects. According to the interviewees, no investments are held back but 
investments must be regarded as efficient to be approved by the NRA. If new ideas and projects 
are suggested by the TSO, the TSO faces the risk as to whether or not the NRA accepts the 
costs. Therefore, it could be considered to introduce an incentive for innovation in a tariff 
system to reduce the risk for uncertain acceptance of investments in innovative solutions. Also, 
there might be the general risk of a bias towards CAPEX intensive solutions, but the 
stakeholders currently see no hinderance related to innovation. 

From the interviews we could not derive any urgent need for changes of the NRF in terms of 
security of supply because a mandatory regulation from EU exists that states what actions to 
take generally. Based on this regulation Hungary is developing an adapted security of supply 
regulation. According to the interviewees Hungary is currently in the middle of conception and 
implementation work. Key aspects of the regulation are, amongst others, mandatory storage 
obligations and the limitation of consumers demand in case of crisis. Therefore, no further 
improvements are deemed necessary. 

Options for improvement 

Although the NRF seems well-designed for security of supply and innovation, using the issues 
drawn from the above discussion, the improvement options (i) to (iii) already suggested for the 
electricity sector could be applied in Gas analogously. 

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 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

1.  INTRODUCTION 

The present Country Report is a deliverable of the study “Do current regulatory frameworks in 
the EU support innovation and security of supply in electricity and gas infrastructure?”.  

The key objective of the study is to analyse how the existing national regulatory frameworks 
(NRFs) in the EU guide and incentivise the electricity and gas transmission project promoters to 
undertake investments. The focus of the study is both on investments in new innovative 
technologies and investments to increase security of supply. The main objective of the study is 
to map how the regulatory frameworks in the MSs support such investments and how do these 
frameworks ensure that the necessary investments are made.  

This Country Report provides an overview of both the current legal frameworks and their 
implementation practice related to investments in gas and electricity transmission 
infrastructure. As part of this analysis, selected specific infrastructure projects in electricity and 
gas are discussed. Based on this research, options for improvement are formulated, both 
relating to the implementation practice and to legal changes. 

The Country Report is based on previous study deliverables and analyses. It is divided into two 
main sections, Section 2, which is related to electricity, and Section 3, which is related to gas. 
Each of these sections examines the legal framework (Section 2.12.1 for electricity and Section 
3.1 for gas), including specific rights and duties of relevant parties, such as TSOs and NRAs 
(hereafter also referred to as stakeholders), mechanisms for the financing of investment 
projects and the regulatory rules regarding innovation and security of supply in particular. 
Having studied the legal regulatory framework, Section 2.2 for electricity and Section 3.2 for 
gas examine the regulatory practice in Hungary, drawing specifically on stakeholder interviews, 
and paying particular attention to the regulatory practice related to innovation and security of 
supply. The functioning of the legal framework and the regulatory practice are illustrated by 
selected specific projects in Hungary. Lastly, options for improvement of the regulatory practice 
and the regulatory framework are discussed in Section 2.3 for electricity and Section 3.3 for 
gas.  

These options for improvement are taken from a long list of best practises that the project team 
has compiled based on the analysis of regulatory frameworks in all Member States. We 
acknowledge that we have not carried out a full analysis of all the costs and benefits of the 
suggested options. Therefore, some of these options are conditional and there might be reasons 
that we did not take into consideration not to implement them.  

The focus of this report is not primarily on R&D investments and projects, but rather on 
“innovative” transmission infrastructure related investments. In order to define what 
“innovative” is in the context of this report, we have introduced the notion of “typological 
investments” (see Annex I and II). The goal of selecting “typological investments”, which, in our 
understanding, are categories of investments, was to make the discussion concrete and the 
investments comparable across countries. The term “typological investment” relates to technical 
solutions that TSOs can adopt to provide the transmission capacities needed to cover the 
transmission demand of grid users.  

Thus, a typological investment is meant to be a type of solution that can be implemented, in 
principle, by any TSO in situations in which these solutions are appropriate to provide the 
desired benefit. Hence, typological investments are not specific to a concrete location or a 
particular TSO. Annex I provides a list of typological investments in the electricity sector, 
whereas Annex II provides the same for gas.  

Ultimately, these technical solutions contribute to fulfilling the objective to improve or maintain 
the level of security of supply. It has to be noted that the degree of innovativeness of 
typological investments can be quite diverse, ranging from the construction of conventional 
assets like AC overhead lines or pipelines with conventional materials and construction methods 
down to novel concepts of system automation and operation based on recent R&D 
achievements. Innovation aims at providing the desired level of transmission capacity – 
determined by the objectives of security of supply (see above) – in a way that is in some way 
superior to the conventional way, e.g.: 

i.  by immediately reducing overall cost as compared to a conventional solution; 

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Do current regulatory frameworks in the EU support innovation and security of supply 
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ii.  by prospectively reducing overall cost in the future, subject however to a “learning curve” 

as to the cost level of the innovative solution; 

iii.  by accelerating the process of transmission capacity expansion and thus reducing social 

welfare loss caused by temporarily insufficient transmission capacities; or 

iv.  by providing improvements with respect to other criteria that are often difficult to 

monetarise, like environmental or public acceptance aspects. 

Innovative investments, especially those whose benefits fall into category ii., iii. and iv. named 
above, can face certain barriers and market failures. We have identified five categories of 
innovative projects, which might encounter potential regulatory barriers (see also Annex III for 
more explanation):  
a.  Capital intensive projects resulting in uncertain future OPEX gains (efficiency improvements / 

cost reductions) are not incentivised by the regulatory framework; 

b.  Projects with potential significant benefits, which would benefit primarily the wider society 

and where the concerned TSOs are not incentivised; 

c.  A roll out and investment in smart grids substituting planned physical investments may 

provide a reduction in the regulated asset base, but might not be realised due to an increase 
in tariffs or regulatory disincentives; 

d.  Projects with few or no commercial benefits to justify the investment, but with positive social 

impacts;  

e.  Projects, which result in a lower TSO TOTEX, but bring about a shift in the CAPEX/OPEX 

ratio, which is not incentivised by the regulatory framework.  

Our understanding of innovative investments and typological investments, and the 
categorisation of investment projects in relation to possible regulatory barriers are the basis for 
the research done in the context of the analysis of the implementation practice in this report.  

10 / March 2019 

 
 
 
 
 
 
 
 Do current regulatory frameworks in the EU support innovation and security of supply 
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2.  ELECTRICITY  

2.1.  Legal analysis of the NRF in Hungary 

Overview of the regulatory framework of Hungary – legal rules 

2.1.1. 
Through its decision no. 77/2011. (X.14.) OGY the Hungarian Parliament adopted1 the 
“Hungarian Energy Strategy 2030” (the “Hungarian Energy Strategy”) which contains a 
complex set of long-term principles and priorities for the development of the Hungarian energy 
industry until 2030, with a view to 2050. 

The principal piece of legislation in the Hungarian “Legal Framework” is Act LXXXVI of 2007 on 
electricity (the “Electricity Act”). 

In its Chapter XX, the Electricity Act contains specific delegations of authority for regulating 
certain specifically defined areas of the Hungarian electricity sector to the following levels of 
legislation: 

• 

• 
• 
• 

government2 (the main piece of legislation issued by the government (under the 
delegation in Section 170(1) of the Electricity Act) is government decree 273 of 2007. 
(X.19.) on the implementation of the rules of the Electricity Act (the “Electricity 
decree”); 
the minister in charge of energy policy3; 
the minister in charge of industrial policy4; and 
the president of the Hungarian Energy and Public Supply Regulator5 (in Hungarian: 
“Magyar Energetikai és Közműszabályozási Hivatal”) (“Hungarian Regulator”). The 
Hungarian Regulator’s legal predecessor (the “Hungarian Energy Office”) was 
established in 1994 by Act XLI of 1994 on gas supply. The currently operating 
Hungarian Regulator was established by Act XXII of 2013 (the “Hungarian Regulator 
Act”) as the general legal successor6 of the Hungarian Energy Office. 

The Electricity Act has been modified to comply with the Third Energy Package7. The TEN-E 
Regulation8 contains detailed rules as to the roles of the Hungarian Regulator and the Hungarian 
ITO (defined below). Government decree no 75/2016. (IV. 5.) Korm. contains specific rules for 
the implementation of the provisions of the TEN-E Regulation (see details in Section 2.1.3 
below). 

For the purpose of the Legal Framework in Hungary, “transmission” is defined as 132 kV or 
above9. 

In Hungary, “transmission” (in Hungarian: “átvitel”)10 and “transmission system operation” (in 
Hungarian: “átviteli rendszerirányítás”)11 are carried out by one single ITO (Independent 
Transmission Operator), MAVIR Magyar Villamosenergia-ipari Átviteli Rendszerirányító Zrt. (the 
“Hungarian ITO”). “Transmission system operation” is an activity which may only be carried 
out under a licence issued by the Hungarian Regulator.12 The Hungarian ITO’s licence for 
“transmission system operation” was issued by the Hungarian Regulator under no.: 715/2012 
and it has been modified several times. 

1   The Hungarian Parliament accepted the “Hungarian Energy Strategy 2030” on 3 October 2011. It was 

extended once by the Hungarian Parliament with decision no 5/2015. (III.20. OGY). 

2   Section 170(1) of the Electricity Act. 
3   Section 170(2) of the Electricity Act. 
4   Section 170(3) of the Electricity Act. 
5   Section 170(5) of the Electricity Act. 
6   Section 23(1) of the Hungarian Regulator Act. 
7   Section 184(1) of the Electricity Act. 
8   Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on 

guidelines for trans-European energy infrastructure. 

9   Section 25(1) of the Electricity Act, which provides that the Hungarian ITO must prepare its annual 

network development plans for the networks at 132kV and above. 

10   Section 3(1) of the Electricity Act. 
11   Sections 14-23 of the Electricity Act. 
12   Section 74(1)c) of the Electricity Act. 

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Another important element of the Legal Framework in Hungary is the network code (in 
Hungarian: “Üzemi Szabályzat”) issued by the Hungarian ITO under the Electricity Act (the 
“Network Code”).13 The Network Code contains “the rules, procedures and methodologies 
concerning the electricity network and the transmission network”14. The current Network Code 
(applicable as of 1 April 2018) was approved by the Hungarian Regulator under no.: 1394/2018. 
Under the Network Code15, in connection with the planning and development of the electricity 
network the Hungarian ITO must take into account the principles set forth in the Hungarian 
Energy Strategy. 

Under the Network Code,16 the Hungarian ITO must prepare network development guidelines, 
which must contain the minimum technical requirements of network development. Under the 
Network Code the Hungarian ITO issued such network development guidelines under the title 
“”Planning of the development of networks of 132 kV or above” (the “Network Development 
Guidelines”). The Network Development Guidelines are applicable to the establishment of new 
transmission network equipment and to the renovation or extension of existing transmission 
network equipment. 

The currently applicable Network Development Guidelines consist of three separate 
documents17: 

• 
• 

• 

guidelines for the primary equipment of substations (the “Primary Guidelines”); 
guidelines for the establishment of transmission lines (the “Transmission Line 
Guidelines”); and 
guidelines for the architectural design of substations (the “Architectural Guidelines”).  

Hungarian electricity transmission network 

• 

• 

• 

• 

The ITO must safely, efficiently and reliably operate and maintain the transmission 
network18; 
The ITO must maintain, repair, renovate and develop the transmission network with 
timing such that (i) the transmission network should be suitable for the transmission of 
electricity for a long time; and (ii) reserves should also be taken into account.19 With 
respect to this obligation, the ITO must take into account the “least cost principle” (in 
Hungarian: “a legkisebb költség elve”). In connection with this principle “least cost” 
means the cost which is necessary and justified at the level of the ITO and the national 
economy at the same time;20; 
The ITO prepares, as part of the Network Code, the Network Development Guidelines, 
which specify the minimum technical requirements for the establishment of new 
transmission network equipment and the renovation or extension of new transmission 
network equipment. The current applicable minimum technical requirements are 
specified in the Primary Guidelines, the Transmission Line Guidelines and the 
Architectural Guidelines; 
The ITO must prepare annual transmission network development plans (the 
“Transmission Network Development Plans” or “TNDP”) 21 which must contain:22 
- 

the elements of the transmission network to be established or renovated within the 
following 10 years; 
the already approved developments; 
the projects to be completed in the following 3 years and the timing of the same; 
and 

- 
- 

13   Sections 3(67) and 67 of the Electricity Act. 
14   Section 67(a) of the Electricity Act. 
15   Section 4.2.8 of the Network Code. 
16   Section 4.3.5(A) of the Network Code. 
17   The currently applicable Network Development Guidelines are dated 26 September 2017 and were 
approved by the Hungarian Regulator under no 4856/2017. These documents are accessible at the 
Hungarian ITO’s website at http://mavir.hu/web/mavir/usz-m10. 

18   Section 24(1)a) of the Electricity Act. 
19   Section 24(1)b) of the Electricity Act. 
20   Section 3(43) of the Electricity Act. 
21   The most recent Network Development Plan was issued under no MAVIR-RTO-TRV-0036-00-2017-09-
27. It is accessible at the Hungarian ITO’s website at http://mavir.hu/web/mavir/halozattervezes. 

22   Section 25(2) of the Electricity Act. 

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-  a separate analysis on the forecast of consumer needs and the resulting needs in 

capacity development23. 

The TNDPs are approved by the Hungarian Regulator under the criteria specified in Section 25 
of the Electricity Act. These criteria are as follows: 

• 

• 

• 

the Hungarian Regulator publishes the TNDP on its website and publicly negotiates it 
with the network users24; 
the TNDP must not be contrary to the Community-wide 10-year network development 
plan (under Article 8(4) of Regulation No 714/2009)25; 
the TNDP must not be contrary to any laws and it may not restrict competition26. 

If the TNDP is not in line with these requirements, the Hungarian Regulator obliges the ITO to 
modify the TNDP.27 

If the TNDP complies with these requirements, the Hungarian Regulator approves it. In this 
case, the TNDP becomes binding and the ITO must implement it. The Hungarian Regulator must 
annually check the implementation of the approved TNDP. The costs incurred in connection with 
the implementation of the approved TNDP must be taken into account for the regulation of 
tariffs.28 See the details on the tariff system in Section 2.1.3 below. 

If the Hungarian ITO does not implement the approved TNDP according to the implementation 
schedule, the Hungarian Regulator must issue an invitation for tenders for the implementation 
of the relevant developments.29 

The most recent ten-year Network Development Plan (the “2017 TYNDP”) is available at the 
Hungarian ITO’s website at http://mavir.hu/web/mavir/halozattervezes. In its point 2 the 2017 
TYNDP specifies the three most important criteria of long-term network planning: continuous, 
reliable and high-quality electricity supply in the context of changing energy and market 
conditions. In the same point, the 2017 TYNDP specifies the main long-term goals of network 
planning: the maintenance of the safety of supply and network operation for the benefit of 
customers and to maintain the Hungarian electricity network’s ability to cooperate with the 
European electricity network. 

Point 2 of the 2017 TYNDP also refers to the Hungarian ITO’s own network development 
principles (the “Principles”). One of these Principles is the Hungarian ITO’s obligation to 
examine the possibility and necessity of the introduction of new technical solutions, which have 
not yet been applied. 

Electricity transmission lines under the TEN-E Regulation 

Under the TEN-E Regulation Hungary belongs to the priority electricity corridor “NSI East 
Electricity”.30 The role of the Hungarian ITO under the TEN-E Regulation is specified in said 
regulation. 

Undertaking of investments 

As indicated above, the Hungarian ITO must, first of all, safely, efficiently and reliably operate 
and maintain the transmission network31. 

Secondly, the Hungarian ITO must also maintain, repair, renovate and develop the transmission 
network with timing such that (i) the transmission network should be suitable for the 
transmission of electricity for a long time; and (ii) reserves should also be taken into account.32 
With respect to this second obligation, the ITO must take into account the “least cost principle” 
(in Hungarian: “a legkisebb költség elve”). In connection with this principle, “least cost” means 

23   Section 9(1) of the Electricity decree. 
24   Section 25(4) of the Electricity Act. 
25   Regulation no 714/2009/EC, Article 8. 
26   Section 25(5) of the Electricity Act. 
27   Section 25(5) of the Electricity Act. 
28   Section 25(6) of the Electricity Act. 
29   Section 26/A of the Electricity Act. 
30   Section 1/(3) of Annex I of the TEN-E Regulation. 
31   Section 24(1) a) of the Electricity Act. 
32   Section 24(1)b) of the Electricity Act. 

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the cost, which is necessary and justified at the level of the ITO and the national economy at 
the same time.33 
As indicated above, the ITO carries out its transmission network development duties under the 
control of the Hungarian Regulator, more specifically under the applicable TNDP. As indicated 
above, the ITO must implement the TNDPs approved by the Hungarian Regulator. 

Role of NRA 

The Hungarian Regulator’s role in connection with transmission network development is twofold: 

• 

• 

to review and approve the Hungarian ITO’s Network Code and the Network 
Development Guidelines which contain the minimum technical requirements of 
transmission network development and which are integral parts of the Network Code; 
and 
to annually review the ITO’s Transmission Network Development Plans: to check these 
from the point of view of the applicable community-wide requirements and the 
requirements of Hungarian law. As indicated above, in connection with the development 
of the transmission network the Hungarian Regulator must ensure under Section 24(2) 
of the Electricity Act that the “least cost principle” is met. This principle (under Section 
3(43) of the Electricity Act) means that the costs of the transmission network 
development to be incurred by the ITO may not be more than what is necessary and 
justified both at the level of the ITO and the national economy. 

We can confirm in general that when the Hungarian Regulator approves a transmission network 
development plan, under the Electricity Act they must consider all relevant issues in their 
complexity. These issues are (among others) compliance with the minimum technical 
requirements specified in the Network Development Guidelines, the long-term safety and 
sustainability of supply, quality of supply, compliance with the Community-wide 10-year 
network development plans and the “least cost principle”. 

Institutional or procedural constraints on the performance of these roles 

There are no specific procedural constraints applicable to transmission network development 
projects. 

To the contrary, under Act LIII of 2006 on “projects of crucial interest to the national economy” 
the government may designate specific projects of crucial interest. The government issues 
separate decrees for the individual projects specifying the exceptional rules applicable to the 
project in question within the limitations of the act. The following investments may be 
designated as projects of crucial interest:34 

• 
• 
• 

• 

• 

• 

• 

• 

investments which are wholly or partially financed from EU funds; 
investments which are implemented wholly or partially with budget subsidies; 
investments which are based on agreements concluded for concession-based activities 
with a minimum cost level of 5 billion HUF; 
investments which are implemented wholly or partially with subsidies based on 
individual governmental decisions; 
investments with a minimum aggregate cost level of 90 million HUF which create at 
least 15 new jobs; 
investments which promote environmental, research-development, educational, or 
health care and social goals; 
investments relating to the maintenance, presentation or development of national 
memorial locations; or 
investments relating to primary national treasures and monuments. 

2.1.2. 

Specific legal rights and duties 

Hungarian transmission network 

As to the development of the Hungarian transmission network, we have described the rules 
applicable to this in the Hungarian Legal Framework. The Hungarian Legal Framework allocates 
the functions concerning the investment projects concerning the Hungarian transmission 
network to the ITO and the Hungarian Regulator. 

33   Section 3(43) of the Electricity Act. 
34   Section 1(1) of Act LIII of 2006. 

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In the case of complex transmission network development projects (e.g., the establishment of a 
new transmission network line), the following “other parties” have certain roles under Hungarian 
law: 
•  Building Permit Authorities under the Electricity Network Construction Decree35: 
first instance authority: the technical safety department of the local government office 
designated by law36; 

- 

-  second instance authority: the technical safety department of the Metropolitan 

Government Office. 

The building permit procedure starts with the submission of a technical documentation to 
the relevant authority. The mandatory contents of the technical documentation are specified 
in Annex 3 of the Electricity Network Construction Decree. Under Section 4.6 of Annex 3 of 
the Electricity Network Construction Decree, the technical documentation must contain the 
designer’s declaration whereby the designer: 
-  declares that the planned technical solution complies with the applicable law and the 

requirements of authorities; 

-  declares that the planned technical solution secures the safety of life, health, the 

- 

environment and cultural heritage; and 
identifies the technical standards and technical guidelines used for the technical 
documentation; if such standards or guidelines do not exist, the designer must declare 
that the planned technical solution reaches the level of safety, which is secured by the 
harmonized technical standards. 

•  Environmental authorities under the Environmental Permit Decree37 

reduce emissions to the lowest possible level; 

reduce all possible burdens on the environment; 

Under Section 17 of the Environmental Permit Decree the applicant of an environmental 
permit must use the best available technical solutions in order to: 
- 
-  ensure that all materials and energy are used efficiently; 
- 
-  avoid the accumulation of waste; 
-  avoid incidents resulting in environmental impact; and 
-  prevent all contamination in the case of the stoppage of the activity under review. 
The best available practices must be checked under the reference documents issued by 
the European Commission. If no such document exists for the activity under review, the 
criteria specified in Annex 9 of the Environmental Permit Decree must be taken into account. 

•  The “interested public” under the Environmental Permit Decree 

The “interested public” under Section 2(1) of the Environmental Permit Decree means 
natural or legal persons or organizations without a legal personality, which may be affected 
by the decision of the environmental authority in the procedure under review. The 
“interested public” must be informed about all the details of the project subject to the 
environmental permit procedure. Public auditions must be held in certain cases specified by 
Sections 9 and 21 of the Environmental Permit Decree where the “interested public” may 
give its opinion on the project under review. These opinions are not obligatory but the 
environmental authority must consider them and analyse them in its decision on the 
environmental permit request; 

•  Environmental NGOs 

Under Section 98 of the Environment Protection Act,38 associations established for the 
protection of the environment (“Environmental NGOs”) have the status of a “client” in 
environmental permit procedures in the territory affected by their activities. This means that 
they may appeal decisions and may start litigation against the decisions of the environmental 
authorities; 

•  Cultural heritage authorities 

Under Sections 23/B-F of the National Heritage Protection Act39, in the case of “large 
investments” preventive archaeological exploration must be carried out. The definition of 
“large investments” is contained in Section 7(6) of the National Heritage Protection Act. 

35   The building permit procedures relating to electricity transmission network-related construction works is 
regulated by government decree no 382/2007.(XII.23.)Korm (the “Electricity Network Construction 
Decree”). 

36   Annex 1 of government decree no 365/2016.(XI.29.) Korm. 
37   The environmental permit procedures are regulated by government decree no 314/2005.(XII.25.) 

Korm. 

38   Act LIII of 1995. 
39   Act LXIV of 2001. 

March 2019 I 15 

 
 
 
                                                 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

Projects of common interest (PCIs) under the TEN-E Regulation 

The Hungarian Regulator and the ITO are both bound by the TEN-E Regulation. This regulation 
sets up a specific institutional structure for the promotion of projects of common interest (PCIs). 
The TEN-E Regulation defines the “project promoters” in its Article 2(6), which contains 
“investors developing a project of common interest”. Such “project promoters” are not specified 
in the Hungarian Legal Framework among the players of the development of the Hungarian 
transmission network. Under the Hungarian TEN-E Methodology, it cannot be excluded that 
“project promoters” propose projects to the Hungarian Regulator. 

2.1.3. 

Mechanism for financing of investment projects 

Financing through transmission network use tariffs regulated by the Hungarian 
Regulator 

Under Section 25(6) of the Electricity Act, the justified costs of transmission network 
development projects must be taken into account in the transmission network tariffs. In other 
words, the source of financing for the transmission network development projects goes through 
the tariffs specified by the Hungarian Regulator within the framework of the following tariff 
regulation structure. 

Under Section 141 of the Electricity Act the transmission network tariffs are tariff caps, which 
are specified by the Hungarian Regulator in tariff decrees (to be analysed in detail below). The 
Hungarian Regulator specifies the tariffs “ex officio”.40 The “tariff cap” means that higher tariffs 
than the tariffs specified by the Hungarian Regulator cannot be applied. However, lower tariffs 
can be applied according to terms previously published and without discrimination.41 The 
network tariffs are regulated in 4-year tariff periods42 (analysed in detail below). The network 
tariffs are the same throughout Hungary.43 The principles of the tariffs under Section 142(5) of 
the Electricity Act are the following: 

• 
• 

• 

• 

they must be based on the least cost principle;44 
they must take into account the justified costs of the efficiently operating licensee 
(including capital costs); 
they must motivate the licensees to increase (in the short and the long term alike) the 
efficiency of their operations; and 
they must motivate the licensees to continuously increase the quality of their services 
and the security of supply. 

The transmission network tariffs are specified annually.45 

Under the general rules in Sections 142 and 143 of the Electricity Act and also based on the 
delegation of authority in Section 159(1)5 of the Electricity Act, the Hungarian Regulator issued 
the currently applicable electricity network tariff decree under no 7/2016.(X.13)MEKH (the 
“Network Tariff Decree”). This Network Tariff Decree applies to a 4-year tariff-period between 
1 January 2017 and 31 December 2020.46 During this period, the electricity network tariffs are 
set by the Hungarian Regulator on the basis of two main criteria47: (i) the least cost principle48 
and (ii) the “justified costs” of the licensees. The “justified costs” are costs which are incurred in 
compliance with applicable law and the relevant entity’s licence (i) and which are actually 
necessary to continuously and securely carry out the licensed activity, (ii) and which are 
actually necessary for the operation of the company which carries out the licensed activity 
(only to the extent that this operation is efficient), including (for both categories), the capital 
costs as well. 

40   Section 141(4) of the Electricity Act. 
41   Section 141(6) of the Electricity Act. 
42   Section 141(10) of the Electricity Act. 
43   Section 142(3) of the Electricity Act. 
44   Section 3(43) of the Electricity Act: „the costs incurred by a licensee for the purpose of the licensed 

activity which is necessary and justified both at the level of the licensee in question and at the level of 
national economy”. 

45   Section 143(1) of the Electricity Act. 
46   Section 1 of the Network Tariff Decree. 
47   Section 3(1) of the Network Tariff Decree. 
48   Section 3(43) of the Electricity Act: „the costs incurred by a licensee for the purpose of the licensed 

activity which is necessary and justified both at the level of the licensee in question and at the level of 
national economy”. 

16 / March 2019 

 
 
 
 
 
 
                                                 
 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

With regard to the amount of the tariffs, the Regulator must take into account the tariffs applied 
in the previous tariff period and in the course of setting the annual tariffs, the Hungarian 
Regulator must endeavour to avoid significant changes from one year to another.49 
With regard to the amount of the tariffs, the Hungarian Regulator must also endeavour to 
achieve the following:50 

• 

• 

• 

• 

• 

• 

• 

the network operators are encouraged to increase the efficiency of their activities 
(Section 3(3)a) of the Network Tariff Decree)51; 
the network operators should become interested in complying with the minimum quality 
criteria specified by the Hungarian Regulator52; 
the network operators should be motivated to carry out the network developments 
which are necessary for a sustainable operation53; 
the network operators should not be interested in promoting the customers’ energy 
efficiency measures54; 
the network operators’ risks should not exceed the limit which is reasonable under the 
given economic circumstances55; 
the network operators should be able to make their business policy decisions with due 
foresight56; and 
the network operators should be motivated to make smart grid-related 
developments. 

In the first year of the 4-year tariff period the tariffs are specified on the basis of a cost analysis 
procedure whereby the costs of all individual licensees are separately analysed (“Initial Cost 
Analysis”).57 In the following three years of the 4-year period, the annual tariffs are specified 
on the basis of the first year’s tariff.58 

During the Initial Cost Analysis, the following cost types must be analysed59: 

• 
• 
• 
• 
• 

the operation costs (paragraph a); 
the amortization of equipment (paragraph b); 
capital costs (paragraph c); 
network loss (paragraph d); and 
individual costs and individual revenues. 

• 

• 
• 

“Transmission tariffs” must provide coverage for the following:60 
the justified operational costs of the ITO (paragraph a); 
the justified amortization and capital costs of those equipment and assets of the ITO 
which serve the transmission system operation activity (paragraph b); 
the justified costs which are necessary for the purchase of electricity to compensate 
network loss (paragraph c); 
the justified costs of activities belonging to the ITO’s system-related services subject to 
the “least cost principle” (paragraph d); 
the justified costs incurred by the ITO in connection with the fulfilment of its 
international market integration obligations (paragraph e); 
the justified costs incurred by the ITO in connection with the fulfilment of obligations 
under law or a legal act of the European Union (paragraph f). 

• 

• 

• 

Financing from funds available in the “Connecting Europe Facility” (CEF) 

The government issued a decree under no 75/2016. (IV.5.) Korm. to implement the provisions 
of the TEN-E Regulation from the point of view of how the funds available in the CEF may be 
used (the “CEF Decree”). Under the CEF Decree, requests for funding from the CEF may be 
submitted to the European Commission on the basis of the government’s individual approval. 

49   Section 3(2) of the Network Tariff Decree. 
50   Section 3(3) of the Network Tariff Decree. 
51   Section 3(3)a) of the Network Tariff Decree. 
52   Section 3(3)b) of the Network Tariff Decree. 
53   Section 3(3)c) of the Network Tariff Decree. 
54   Section 3(3)d) of the Network Tariff Decree. 
55   Section 3(3)e) of the Network Tariff Decree. 
56   Section 3(3)f) of the Network Tariff Decree. 
57   Section 7(1) of the Network Tariff Decree. 
58   Section 10(1) of the Network Tariff Decree. 
59   Section 7(2) of the Network Tariff Decree. 
60   Section 4 of the Network Tariff Decree. 

March 2019 I 17 

 
 
 
 
 
 
                                                 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

The government gives such approvals in individual government resolutions published in the 
Official Gazette of Hungary. Under the CEF Decree, no individual government resolutions have 
yet been issued in connection with projects relating to the development of the electricity 
transmission network. 
Mechanisms to foster innovation: 

As indicated above, the development of the Hungarian transmission network is the duty of the 
ITO under Section 25 of the Electricity Act. As described above, there is one general financing 
mechanism applicable to the Hungarian transmission network: the regulation of the 
transmission tariffs by the Hungarian Regulator. Also, as indicated above, the transmission 
tariffs specified by the Hungarian Regulator are the primary sources of the transmission network 
development. Projects, which may typically be accommodated within this framework, are those, 
which comply with the complex requirements of the Hungarian Legal Framework described 
above: safety and sustainability of supply, compliance with the “least cost principle” and the 
tariff regulation requirements. 

A special regime applies to transmission network developments under the TEN-E Regulation 
where CEF funds are used. In this context, the Hungarian government issues individual 
resolutions for the application for the CEF funds to the European Commission. As mentioned 
above, under the CEF Decree no individual government resolutions have yet been issued in 
connection with projects relating to the development of the electricity transmission network. 

Measures to establish a balance between investing in new or innovative network 
infrastructure to meet the needs of current and future users in a timely manner and 
avoiding investment in stranded assets 

As described above, under Section 24(2) of the Electricity Act one of the basic principles of 
network development in Hungary is the “least cost principle”. This must be taken into account in 
connection with all network developments. On the other hand, the Hungarian ITO is obliged by 
law (under Section 24 of the Electricity Act) to operate and maintain the transmission network 
and also to develop it in compliance with the applicable Transmission Network Development 
Plans approved by the Hungarian Regulator. The main goal of the ITO’s statutory obligation to 
develop the transmission network is to ensure a long-term, sustainable, secure supply of 
electricity. We described the criteria applicable to the transmission network development plans 
and the criteria of the tariffs, which are supposed to provide financial coverage for such 
development. 

The special regime applicable to transmission network developments under the TEN-E 
Regulation from CEF funds are described in detail above. These rules and the CEF financing 
mechanisms may (beyond the Hungarian Legal Framework) also motivate investments in 
transmission networks focussing on new innovative network infrastructure. 

2.1.4. 

Regulatory rules with respect to innovation 

Specific duties of the TSO aimed at encouraging innovation 

The Hungarian ITO’s duties relating to innovation are integral parts of their overall duties 
related to the transmission network they operate. As indicated above, they must prepare annual 
network development plans, which must aim at a long-term safety of supply (with regard to 
increasing consumer needs) and must also be in line with the Community-wide 10-year network 
development plans. The Hungarian ITO’s statutory obligation to take all these criteria into 
account, in our view, implies an encouragement for innovation. 

Furthermore, the Network Development Guidelines issued by the Hungarian ITO under the 
Network Code contains the minimum technical requirements of network planning. As indicated 
in Section 2.1.12.1.1 above the Network Development Guidelines consist of three separate 
parts, each regulating in detail the minimum technical standards for the planning of 
transmission lines, primary equipment and architectural design. The question whether these 
minimum technical requirements encourage innovation is a question for technical experts to 
consider. 

Specific duties of the NRA aimed at encouraging innovation 

Hungarian transmission network 

The Hungarian Regulator has the power to approve the Hungarian ITO’s Network Code, which 
also contains the Network Development Guidelines, described in Section 2.1.1 above in detail. 

18 / March 2019 

 
 
 
 
 
 
 
 
 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

These Network Development Guidelines contain detailed minimum technical requirements for 
the planning of transmission lines, the primary equipment of substations and the architectural 
design of substations. Through its power to review and approve these Network Development 
Guidelines the Hungarian Regulator is able to influence the technical development of the 
transmission network. The question whether the currently applicable Network Development 
Guidelines, indicated in Section 2.1.1 above, encourage innovation is a question for technical 
experts to consider. 

The Hungarian Regulator also has the power to approve and enforce the implementation of the 
ITO’s Transmission Network Development Plans. The criteria to be applied by the Hungarian 
Regulator in connection with its duties concerning the ITO’s Transmission Network Development 
Plans (described in Section 2.1.3 above) ensure that the ITO’s transmission network 
development plans must focus on innovation. 

As mentioned above, the primary source of financing for the ITO’s transmission network 
development works through the transmission tariffs. 

As mentioned in paragraph 3(ii) above, the transmission tariffs are specified by the Hungarian 
Regulator under strictly specified principles set forth in the Network Tariff Decree (analysed in 
detail above). For example, Section 3(3)g) of the Network Tariff Decree specifically provides 
that transmission tariffs must be specified in such a manner that the ITO (and the distribution 
network operators) should be motivated to develop smart grid methods. 

Projects of common interest (PCIs) under the TEN-E Regulation 

Under Article 13(6) of the TEN-E Regulation the Hungarian Regulator has published its 
“methodology and criteria used to evaluate investments in electricity and gas infrastructure 
projects and the higher risks incurred by them” (the “Hungarian TEN-E Methodology”). 

We briefly describe the main terms of the TEN-E Methodology as follows. 

Compliance with the Community-wide 10-year network development plan 

If it is doubtful, whether the ITO’s network development plan is in compliance with the 
Community-wide 10-year network development plan under Regulation No 714/2009/EC61 the 
Hungarian Regulator consults with the ACER62. If the ITO’s network development plan is not in 
compliance the Hungarian Regulator may oblige the ITO to extend the plan under two conditions 
(i) if the compensation under Regulation No 838/2010/EU63 covers the development specified in 
the Community-wide 10-year network development plan and (ii) if the development in question 
is justified from the point of view of the security of supply on the Hungarian electricity network. 
If the ITO does not comply with its obligations under the approved transmission network 
development plan the Hungarian Regulator may issue an invitation for tenders for the 
completion of the development, which the ITO refused to implement. 

Risk evaluation methodology 

General risk evaluation principles 

PCIs must promote the following economic goals: 
increase of the security of energy supply; 
increase of the reliability of the network; 
establishment of a European energy market. 

• 
• 
• 

The Hungarian regulator examines the general supply-and-demand issues, the specific industrial 
criteria and the risks associated with the cooperation beyond national level. The primary task of 
the Hungarian regulator is to get to know the views of all the parties affected by the planned 
development. 

61   Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on 

conditions for access to the network of cross-border exchanges in electricity. 

62   Agency for the Cooperation of Energy Regulators. 
63   Commission Regulation (EU) No 838/2010 of 23 September 2010 on laying down guidelines to the 

inter-transmission system operator compensation mechanisms and common regulatory approach to 
transmission charging. 

March 2019 I 19 

 
 
 
 
 
 
 
 
 
 
 
                                                 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

Specific risk evaluation principles 

The Hungarian regulator will examine the documents submitted by the “project promoters”. It is 
of primary importance that all information must be available to the Hungarian Regulator. The 
Hungarian Regulator may request additional information from the relevant “project promoters”. 
In the course of its evaluation of the risks associated with a proposed project the Hungarian 
Regulator gives primary importance to the following factors: 

• 
• 
• 
• 
• 
• 
• 
• 

overspending beyond the planned costs; 
reduction of planned turnover; 
liquidity risks; 
planning risks; 
financial risks; 
risks resulting from the completion or non-completion of other projects; 
technological risks; 
evaluation and exchange risks. 

It is also important for the Hungarian Regulator that the “project promoters” must do their best 
to reduce the risks. 

All the risk factors must be considered individually indicating the likelihood of its occurrence and 
the financial impact. 

2.1.5. 

Regulatory rules with respect to security of supply 

Specific duties of the TSO aiming at safeguarding security of supply 

As indicated above, under Section 24(1) of the Electricity Act the Hungarian ITO’s primary duty 
is the safe, efficient and reliable operation and maintenance of the transmission network. The 
specific elements of this duty are related to the regular planning of the maintenance, repair and 
development of the transmission network under the control (and subject to the approval) of the 
Hungarian Regulator. 

Specific duties of the NRA aiming at safeguarding security of supply 

Hungarian transmission network 

The Hungarian Regulator’s main duties are related to the safeguarding of the security of supply 
for the entire Hungarian electricity sector. Its relevant duties are as follows: 

• 

• 
• 
• 
• 

• 
• 
• 
• 

• 
• 

to ensure that all entities which carry out licensed activities comply with the applicable 
laws64; 
to promote an efficient and sustainable competition on the electricity market65; 
to ensure efficiency and the application of the least cost principle66; 
to maintain and increase the security of supply67; 
to promote that the transmission system operator and the network users get suitable 
incentives to increase the efficiency of the electricity network and market integration68; 
to issue the licenses to those who carry out license-related activities69; 
to approve the business codes of the licensees70; 
to approve the electricity supply codes71; 
to issue decrees on the principles of the regulation of network usage tariffs 
and the amount of such tariffs72; 
to approve the ITO’s transmission network development plan73; 
to specify, to the relevant licensees individually, the minimum quality requirements of 
licensed activities74; 

64   Section 158(2)a) of the Electricity Act. 
65   Section 158(2)b) of the Electricity Act. 
66   Section 158(2)c) of the Electricity Act. 
67   Section 158(2)d) of the Electricity Act. 
68   Section 158(2)l) of the Electricity Act. 
69   Section 159(1)1 of the Electricity Act. 
70   Section 159(1)2 of the Electricity Act. 
71   Section 159(1)3 of the Electricity Act. 
72   Section 159(1)5 of the Electricity Act. 
73   Section 159(1)11 of the Electricity Act. 
74   Section 159(1)13 of the Electricity Act. 

20 / March 2019 

 
 
 
 
 
 
                                                 
 Do current regulatory frameworks in the EU support innovation and security of supply 
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• 

• 

to continuously check the changes in the availability of power plants, and in the case of 
unjustified retention of capacities, to specify the mandatory level of capacity to be 
dispatched by power plants75; 
to control acquisitions of control over certain types of licensees in the electricity 
market76. 

In addition to these, the Hungarian Regulator also has duties in connection with the following: 

• 
• 
• 
• 

to avoid discrimination77; 
to promote efficient competition78; 
to ensure the application of the unbundling requirements79; and 
to protect consumers80. 

The focus of this analysis is the development of transmission networks. Therefore, the 
Hungarian Regulator’s tasks described in this second sub-paragraph of Section 2.1.5 are beyond 
the scope of this analysis. 

European Projects of Common Interest (PCIs) under the TEN-E Regulation 

The Hungarian Regulator has issued a methodology of the risk analysis related to electricity and 
gas PCIs. It is available at its website (www.mekh.hu) in Hungarian only. 

2.2.  Regulatory practice  

Overview over regulatory practice in Hungary 

2.2.1. 
The general regulatory principle can be described as a combined model of Incentive-based 
Regulation and Cost-plus. Within the legal analysis, (see Section 2.1) we have identified a 
strong emphasis on a least cost principle, which is unclear if this encourages or discourages 
innovation. 

Main regulatory barriers 

The interviewees were generally satisfied with the NRF in Hungary. Yet, they also recognize a 
few of the regulatory barriers mentioned in annex III, even though the barriers are said to not 
turned out as a significant issue in practice: 

• 

• 

“Higher TSO CAPEX but lower expected OPEX within the TSO”: interviewees can imagine 
this type of barrier occurring, because currently there is no mechanism in the NRF to 
include life time costs of solutions. But interviewees also state that this potential barrier 
did not get a significant relevance in practice up to now; 
“Lower TSO TOTEX but shift in the CAPEX/OPEX ratio”: Possibly a bias towards CAPEX 
exists, but currently no OPEX intensive projects are planned and usually there is a focus 
on CAPEX during the approval process. So, in practice, this did not turn out to be a 
substantial issue so far. 

Possible improvement of the NRF 

Based on the interviews the following improvements to the NRF could be considered: 

• 
• 

Foster application of innovative solutions; 
Find a way to stimulate participation in fields of activity or the application of 
technologies with high OPEX ratios, especially if (socio)-economic benefit is proven; 

•  Remove uncertainty how to determine most cost-effective technology. 

2.2.2. 

Regulatory practice related to innovation 

Innovative projects 

In the NRF, there is no statutory duty for the TSO to innovate. But further we found out that the 
TSO's network development principles do include a duty to examine the possibility and necessity 
of introducing new technical solutions that have not yet been applied. Also, the interviewees 
agreed on having no direct incentive to invest in innovative technology. But the interviewees 

75   Section 159(1)14 of the Electricity Act. 
76   Section 159(1)15 of the Electricity Act. 
77   Section 159(2) of the Electicity Act. 
78   Section 159(3) of the Electricity Act. 
79   Section 159(4) of the Electricity Act. 
80   Section 159(5) of the Electricity Act. 

March 2019 I 21 

 
 
 
 
 
 
 
 
 
                                                 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

stated that usually the TSO uses the most appropriate technologies available, which also 
includes innovative solutions. As the NRF encourages the TSO to always use the most cost-
effective technology this is an incentive for innovative technologies resulting in lower cost than 
conventional solutions but might discourage TSOs from applying technologies with higher 
specific costs but wider benefits, e.g. higher public acceptance.  

Nevertheless, the interviewees see the NRF as generally adequate and no projects were 
reported not being realised due to the NRF. Also, interviewees tell that smaller deviations from 
the least-cost principle are accepted by the NRA in most cases, e.g. for the use of new type of 
towers with higher specific cost. This may be because the NRA approves the entire NDP instead 
of individual projects, which does not mean that the NRA does not require any changes to the 
NDP. 

Even though interviewees' opinions differ on how many innovative projects are carried out, 
examples of ‘innovative’ projects, which are being conducted or planned, encompass: 

• 

• 

• 

• 

bird flying deviator mounted on existing lines via drones without switching-off the line, 
started last year; 
new modular types of towers for 400kV, needing less space on the ground,  
first usage this year but future applications foreseen, for example in cross-border PCI 
project with Slovakia; 
high-temperature AC conductors as replacement on an existing line with limited 
permissible sag, coming into operation next year; 
change of 400kV towers to ones with special shape to increase public acceptance (6-7 
years ago). 

Adequacy of the NRF relating to its support for innovative investments 

There are no provisions in the regulation explicitly facilitating innovation. The NRF is neutral 
regarding project categories, such as innovative or conventional, PCI or non-PCI. The regulation 
should ensure that the TSO operates effective and efficient. So, as long as project costs are 
reasonable, and the necessity and the benefit can be demonstrated, an investment will be 
approved by the NRA. Regardless of this, interviewees recognised some of the barriers listed in 
annex III: 
• 

“Higher TSO CAPEX but lower expected OPEX within the TSO”: interviewees can imagine 
this type of barrier occurring, because currently there is no mechanism in the NRF to 
include life time costs of solutions. But interviewees also state that this potential barrier 
did not get a significant relevance in practice up to now; 
“Lower TSO TOTEX but shift in the CAPEX/OPEX ratio”: Possibly a bias towards CAPEX 
exists, but currently no OPEX intensive projects are planned and usually there is a focus 
on CAPEX during the approval process. So, in practice, this did not turn out to be a 
substantial issue so far. 

• 

Generally, the NRF encourages the TSO to always use the most cost-effective technology but 
some interviewees name uncertainties how to determine these costs, as they are not 
necessarily only the smallest investment cost. Therefore, it could be considered to overcome 
this issue by applying an adapted ENTSO-E TYNDP CBA. Currently, no CBA is used in the NDP. 
Additionally it is worth considering to add detailed definitions in NRF, e.g. for cost-benefit 
relations within CBA or cost types in terms of what are the most efficient cost. 

2.2.3. 

Regulatory practice related to security of supply 

Security of supply projects 

One of the key tasks of the TSO in terms of security of supply is the preparation of the NDP. The 
current plan states long term goals of network planning including continuity of security of 
supply. The NRA approves and monitors the NDP annually. Additionally, the NRA reviews and 
approves TSO’s network development guidelines regarding their minimum technical 
requirements. Interviewees tell that benefits for security of supply can typically be 
demonstrated in calculations, so usually there are no larger discussions during the approval 
process. Still the necessity of any project aiming at maintaining or enhancing security of supply 
is reviewed carefully before it gets approved. Once a project is approved for security of supply 
reasons, its cost will be integrated in the regulatory asset bases and therefore must be borne by 
the customers. 

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 Do current regulatory frameworks in the EU support innovation and security of supply 
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Project example for an internal SoS project: towers of several lines in the same corridor at a 
motorway crossing were replaced by stronger ones to reduce risk for cascade in the area of 
nuclear power plant. 

Adequacy of the NRF relating to its support for security of supply investments 

Generally, interviewees agree that the regulation is very well equipped to secure security of 
supply. Enough power plants, routes etc. are existing to guarantee a sufficient level of security 
of supply. The interviewees did not name any additional issues and we were not able to detect 
any improvements of the NRF based on the interviews. 

Illustrative specific projects 

2.2.4. 
The following projects are examples of successful innovative or security of supply projects and 
hence illustrate how the regulatory regime works in practice. 

No 3.16 of Annex VII to the TEN-E Regulation: specified as a “Project of Common 
Interest” by Commission delegated Regulation (EU) 2016/89  

3.16.1: 400 kV Interconnection between Gabčikovo (Slovakia) - Gönyű (Hungary) and 
Vel’ký Ďur (Slovakia) 

The main purpose of this interconnection is to discharge the existing high voltage lines in the 
region with regard to the electricity generation capacities in the region and therefore aims at 
increasing security of supply. The project is currently in the phase of planning which is due to 
finish by the end of 2018. The Hungarian and Slovakian ITOs signed the Implementation 
Agreement on 1 March 2017 in Bratislava (Slovakia). The project is indicated as a project to be 
finished by the end of 2020 in the 2017 TYNDP. In the Ten Year Network Development Plan of 
the EU for 2016 this project is indicated in the same cluster with the one indicated under no 
3.17 below 81. To assess cost and benefits the CBA method of PCI projects was applied. It is 
expected that the project will be refinanced by the regular tariff mechanism. Generally, the 
project did not benefit from any special regulatory treatment, but the usual least-cost-principle 
was applied. It was said that no regulatory barriers were noticed that might hinder an approval. 

No 3.17 of Annex VII to the TEN-E Regulation: specified as a “Project of Common 
Interest” by Commission delegated Regulation (EU) 2016/89  

3.17: 400 kV Interconnection between Sajóivánka (Hungary) and Rimavská Sobota 
(Slovakia) 

The main purpose of this interconnection is to comply with the “n-1” principle applicable to the 
security of supply. Due to the closure of major electricity generation facilities in the region 
(Tisza I., II.), the electricity supply of the region is mainly secured by the 220 and 400 kV 
interconnections between the Ukraine and Hungary, by the Mátra power plant (in Hungary) and 
another 400 kV Slovakian-Hungarian (Göd-Léva) interconnection. The project is currently in the 
phase of planning which is due to finish by the end of 2018. The Hungarian and Slovakian ITOs 
signed the Implementation agreement on 1 March 2017 in Bratislava (Slovakia). The project is 
scheduled to finish by the end of 2020 in the 2017 TYNDP. In the Ten Year Network 
Development Plan of the EU for 2016 this project is indicated in the same cluster with the one 
indicated under no 3.16 above82. To assess cost and benefits the CBA method of PCI projects 
was applied. It is expected that the project will be refinanced by the regular tariff mechanism. 
Generally, the project did not benefit from any special regulatory treatment, but the usual least-
cost-principle was applied. It was said that no regulatory barriers were noticed that might 
hinder an approval. 

2.3.  Options for improvement  

Options to improve regulatory practice 

2.3.1. 
The above discussion shows that the NRF is well-designed and functional for both security of 
supply and innovative projects. No significant problems with practical relevance have been 
reported by the interviewees. Yet, the following improvements could be considered. 

81   Source of information at the Hungarian ITO’s website at http://mavir.hu/web/mavir/pci-jeloltek. 
82   Source of information at the Hungarian ITO’s website at http://mavir.hu/web/mavir/pci-jeloltek. 

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(i) 

Favouring of OPEX-based solutions 

Generally, the NRF is considered adequate in supporting investments in security of supply and 
some kinds of innovative technologies. Currently, there are no indications that the 
implementation practices provide inadequate incentives to ensure security of supply. Also, a 
number of innovative technologies are used in recent projects. Respondents point out there 
might be a bias towards CAPEX-solutions. If this bias develops a significant distortion for the 
choice of solutions that becomes economically relevant, specific incentives could be introduced 
for these kinds of OPEX-based solutions, which have been identified as advantageous or 
necessary. 

(ii) 

Statutory obligation to consider alternatives 

A more general approach to foster OPEX-based solutions in the long-term, i.e. beyond a single 
regulatory period, would be the introduction of an obligation to consider OPEX-related 
innovative options in the network development plan. The TSO would then have to provide 
OPEX-based options as alternatives to CAPEX-based projects outlined in the network 
development plan. This approach necessitates that a framework is developed determining when 
OPEX-based solutions should be favoured over CAPEX-based solutions. This approach should be 
coupled with monetary incentives (like option (i)) for the TSO to invest in OPEX solutions to 
counteract the CAPEX bias. 

(iii) 

Statutory reference to innovation 

There are no statutory powers or duties aiming at encouraging innovation. To ensure that 
innovative projects are still encouraged and supported in the next regulatory period, a statutory 
reference to innovation could be included into the regulatory framework. This long-term 
strategic perspective could be shaped by governmental policies, statutory duties or could be 
included in the TYNDP. 

(iv) 

Cost benefit analysis  

The stakeholders criticized existing uncertainties how to determine the most cost-effective 
technology. A first step in this direction would be introducing the requirement to conduct a CBA 
in the NDP. To do so, detailed definitions should be added to the NRF, e.g. for cost-benefit 
relations within CBA or cost types in terms of what are the most efficient cost. If deemed 
necessary, the CBA could be a requirement before approval of the final investment decision or 
before approval of the cost recovery.  

National law mechanism(s) for implementing options 

2.3.2. 
We consider that, with the exception of the following, the above-mentioned changes could be 
implemented using legal powers already available to the NRA or others under the existing NRF. 

As regards option (ii) (statutory obligation to consider alternatives), we understand that the 
legal mechanism for implementing this option would involve the modification of the Electricity 
Act83 (by including the general obligation for the Hungarian ITO to consider such alternatives) 
and the Network Code84 (where the detailed rules could be incorporated). 

83   Under Section 6(1) of the Hungarian Constitution, the modification of an Act of Parliament (such as the 

Electricity Act) may be proposed by the president of Hungary, by the government, by a Parliamentary 
committee or by any member of Parliament. Resolution of Parliament no. 10/2014. (II. 24.) Ogy. 
contains the detailed rules of the adoption of an act of Parliament in Hungary (the “Parliament 
Rules”). Under the Rules of Parliament, the debate process consists of two main parts: (i) the general 
debate, which relates to the necessity and the main principles of the proposal and (ii) the detailed 
debate, which opens on the week following the closure of the general debate. If Parliament votes in 
favour of the proposal and its review by the Constitutional Court is not requested, the President of 
Parliament must send the adopted act to the President of Hungary for signature. If the President of 
Hungary agrees with the act and does not want to have it reviewed by the Constitutional Court he must 
sign it within 5 days. If he does not agree with the act, he may once send it back to Parliament for 
reconsideration. In this case, Parliament must re-consider the act and may modify it or adopt it again 
without any changes. 

84   Under Section 67 of the Electricity Act, it is the Hungarian ITO’s duty to prepare the Network Code in 
cooperation with other licensees and the representatives of customers. Under Section 70(2) of the 
Electricity Act the Hungarian ITO must establish a “regulatory committee” (in Hungarian: “szabályzati 
bizottság”) for the coordination of the establishment and modification of the Network Code. Under 
Section 70(3) of the Electricity Act, the detailed rules on the operation of such regulatory committee 
must be contained in the Network Code itself. The currently applicable Network Code contains these 
rules in its Chapter 18. According to this Chapter 18 of the Network Code, the regulatory committee 

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Turning to option (iii) (statutory reference to innovation), we expect that this could be 
implemented by including a reference to innovation as a general policy goal in the preamble of 
the Electricity Act85. 

As regards option (iv) (cost benefit analysis), the suggestion of incorporating a mandatory 
requirement in legislation for the TSO to provide the NRA with a CBA of an individual project in 
the process of cost recovery approval, could be implemented by the modification of the Network 
Code. 

Impact assessment 

2.3.3. 
Option (i) is not easy to implement in a well-balanced manner. This option risks being be a 
technology-specific incentive, which may not necessarily lead to efficient decisions and may 
even encourage abuse. Also, any innovative and socially beneficial OPEX solutions to be 
favoured by the regulation need to be defined. Such projects would need to be redefined for 
each regulatory period, possibly in cooperation with the TSO and maybe including a stakeholder 
consultation in order to ensure technology neutrality. Therefore, depending on the specific 
implementation the effort for the NRA and the TSO can be high. Additionally, adequate 
incentives for efficiency must be set to avoid abuse. 

The long-term strategic perspective on innovation mentioned in option (iii) necessitates efforts 
and coordination between the TSO and the NRA regarding the design of this long-term 
perspective (e.g. the organisation of stakeholder consultations, determining the scope of the 
innovation needed, monitoring and evaluating of how the statutory duty is translated into the 
long-term perspective).  

Regarding option (iv) effort and benefit must be weighted strongly against each other. 
Depending on the implementation, a CBA can result in a highly increased work for the NRA and 
the TSO. First, unambiguous measurement values must be found for criteria considered. Also, 
when taking qualitative criteria into account, the risk exists that CBA results are influenced by 
individual assessments and therefore are not clear. 

We have not encountered any specific examples of projects that have been cancelled due to the 
regulatory framework. For this reason, we do not expect that any of the suggested changes will 
result in considerable changes to investment levels. Yet, if the perceived risk of innovative 
projects is lowered and a long-term strategic perspective on innovation could be attained, the 
share of innovative projects is expected to increase. Moreover, if implemented well, option (i) 
could result in a shift from primarily CAPEX investments to more OPEX investments. 

consists of 11 voting members: 3 representing the Hungarian ITO, 2 representing the electricity 
generators with a capacity over 50 MW and the remaining 6 seats are distributed among the 
representatives of electricity generators with capacities below 50 MW, distribution network operators, 
universal suppliers, electricity traders and customers. All modifications of the Network Code must be 
negotiated in the regulatory committee. Under Section 18.2.1(B) of the Network Code, modifications to 
the Network Code may be proposed in the regulatory committee. The regulatory committee must have 
at least one meeting every year. We conclude from the above rules that any voting member of the 
regulatory committee may propose modifications to the Network Code. The proposal must be 
negotiated in the regulatory committee and the final wording approved by the regulatory committee 
must be submitted to the Hungarian Regulator for approval. Under Section 70(4) of the Electricity Act, 
any modification of the Network Code can only become effective upon the Hungarian Regulator’s 
approval. 

85   See footnote 81. 

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3.  GAS 

3.1.  Legal analysis of the NRF in Hungary 

Overview of the regulatory framework of Hungary – legal rules 
3.1.1. 
By its decision no. 77/2011. (X.14.) OGY the Hungarian Parliament adopted86 the “Hungarian 
Energy Strategy 2030” (the “Hungarian Energy Strategy”) which contains a complex set of 
long-term principles and priorities for the development of the Hungarian energy industry until 
2030, with a view to 2050. 

The principal piece of legislation in the Hungarian “Legal Framework” is Act XL of 2008 on 
natural gas supply (the “Gas Act”). 

• 

Chapter XVII of the Gas Act contains specific delegations of authority to regulate certain 
specifically defined areas of the Hungarian gas sector to the following levels of legislation: 
government87 (the main piece of legislation issued by the government (under the 
delegation in Section 132/A of the Gas Act) is government decree 19 of 2009. (I.30.) 
Korm. on the implementation of the rules of the Gas Act (the “Gas decree”); 
the minister in charge of energy policy88; 
the minister in charge of industrial policy89; and 
the president of the Hungarian Energy and Public Supply Regulator90 (in Hungarian: 
“Magyar Energetikai és Közműszabályozási Hivatal”) (“Hungarian Regulator”). The 
Hungarian Regulator’s legal predecessor (the “Hungarian Energy Office”) was 
established in 1994 by Act XLI of 1994 on gas supply. The currently operating 
Hungarian Regulator was established by Act XXII of 2013 (the “Hungarian Regulator 
Act”) as the general legal successor91 of the Hungarian Energy Office. 

• 
• 
• 

The Gas Act has been modified to comply with the Third Energy Package92. The TEN-E 
Regulation (Regulation (EU) No 347/2013) contains detailed rules as to the roles of the 
Hungarian Regulator and the Hungarian ITO (defined below). Government decree no 75/2016. 
(IV. 5.) Korm. contains specific rules for the implementation of the provisions of the TEN-E 
Regulation (see details in point 3(ii) below). 

In Hungary, “gas transmission network operation” (in Hungarian: “szállítási 
rendszerüzemeltetés”)93 is carried by one licensee: FGSZ Földgázszállító Zrt. as an Independent 
Transmission Operator (the “Hungarian ITO”). “Transmission system operation” is an activity, 
which may only be carried out under a licence issued by the Hungarian Regulator.94 The 
Hungarian ITO’s licence for “transmission system operation” was issued by the Hungarian 
Regulator under no.: 630/2012. The current length of the Hungarian gas transmission network 
owned and operated by the Hungarian ITO is 5782 kilometres95.96 

Another important element of the Legal Framework in Hungary is the network code of the 
Hungarian gas network (in Hungarian: “A Magyar Földgázrendszer Üzemi és Kereskedelmi 
Szabályzata”) issued by the Hungarian ITO under the Gas Act (the “Network Code”).97 The 
Network Code contains “the rules, procedures and methodologies on the operation of the gas 
network, the minimum contents of the agreements relating to trading, metering and data 

86   The Hungarian Parliament accepted the “Hungarian Energy Strategy 2030” on 3 October 2011. It was 

extended once by the Hungarian Parliament with decision no 5/2015. (III.20. OGY). 

87   Section 132/A of the Gas Act. 
88   Section 133(1) of the Gas Act. 
89   Section 133(2) of the Gas Act. 
90   Section 133/A of the Gas Act. 
91   Section 23(1) of the Hungarian Regulator Act. 
92   Section 159(1) of the Gas Act. 
93   Section Section 3(53a) of the Gas Act. 
94   Section 114(a)b) of the Gas Act. 
95   www.fgsz.hu. 
96   Another entity, which carries out the “transmission” of gas in Hungary, is Magyar Gáz Tranzit Zrt. 

(“MGT Zrt.) which operates a gas transmission line with a length of 92 kilometres. MGT’s transmission 
license was issued by the Hungarian Regulator under no 4553/2015. 

97   Sections 3(64) and 110 of the Gas Act. 

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transfer and the rules on daily balancing”98. The current Network Code (applicable as of 1 
October 2017) was approved by the Hungarian Regulator under no.: 4318/2017. 

Hungarian ITO must prepare data base for planning purposes 

The continuous supervision of available capacities and the development of the entire Hungarian 
gas network (including the transmission and the distribution network) is coordinated by the 
Hungarian ITO 99. For the planning of network developments, the Hungarian ITO must keep a 
data base to which all the relevant network operators must contribute the necessary data.100 
The contents and the structure of this data base is approved by the Hungarian Regulator.101 

Capacity supervisions, network development proposals 

All network operators must annually check the capacities of their respective (distribution and 
transmission) networks102 and must make 10-year network development proposals to the 
Hungarian ITO.103 

Harmonized network development plan – submission to the Hungarian Regulator 

The Hungarian ITO harmonizes the results of these capacity supervisions and network 
development proposals (the “Network Development Plan”) and submits it to the Hungarian 
Regulator for approval.104 

Approval by the Hungarian Regulator 

The Hungarian Regulator may notify the Hungarian ITO to modify the Network Development 
Plan105: 
• 

if it does not comply with the safety-of-supply goals specified by Hungarian law or 
the EU energy policy; 
if it may detrimentally affect the national economy; 
if it is otherwise contrary to any law; 

• 
• 
•  or if it may restrict competition. 

The Hungarian Regulator must also check if the Network Development Plan complies with the 
Community-wide10-year network development plan under Regulation No 715/2009106. 

If the Network Development Plan complies with all the above-mentioned requirements, the 
Hungarian Regulator approves it.107 

The Hungarian ITO’s consultation paper of its Development Proposal for the period between 
2016 and 2025 (the “Consultation Paper”)108 contains a general description of the 
background incentives for the long-term gas transmission network development109. It says in 
general that most transmission network developments are necessary to increase local capacities 
and to increase the safety of supply in Hungary. 

Another important incentive is to increase Hungary’s regional and European strategic role in the 
cross-border transmission of gas by increasing the gas transit volumes, which can only be 
achieved, by the increase of the integration of Hungary’s gas transmission networks into the 
European integrated gas market. 

98   Section 110(1) of the Gas Act. 
99   Section 81(1) of the Gas Act. 
100   Section 81(1) of the Gas Act. 
101   Section 81(3) of the Gas Act. 
102   Section 82(1) of the Gas Act. 
103   Section 82(2) of the Gas Act. 
104   Section 82(5) of the Gas Act. 
105   Section 83(1) of the Gas Act. 
106   Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on 

conditions for access to the natural gas transmission networks. 

107   Section 83(3) of the Gas Act. 
108   The Consultation Paper is accessible at the Hungarian ITO’s website at https://fgsz.hu/hu-hu/10-eves-

fejlesztesi-javaslat-konzultacio. 
109   Page 29 of the Consultation Paper. 

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Furthermore, the increase of the Hungarian gas transmission network’s integration with the 
European gas transmission networks is also important for the long-term increase of gas-gas 
competition in Eastern Europe, because this would also result in a decrease in gas prices. 
According to the Consultation Paper110, in Eastern Europe the gas prices are still highly 
influenced by the oil-based price formulas of long-term gas trading contracts. Complex gas price 
formulas (consisting of oil-related and market prices) also gain in importance but the low 
liquidity of gas does not make it possible for Hungarian customers to enjoy the benefits of the 
free-market trading of gas and rather makes the gas prices less competitive. According to the 
Consultation Paper,111 the level of interconnections and the capacities of such interconnections 
are far below the Western European level in Eastern Europe. Furthermore, Eastern European 
gas transmission networks are mainly suitable for gas transmission from East to West, which is 
also a hardship for the development of the Eastern European gas markets and is also a risk for 
the safety of supply in Eastern Europe. 

For all these reasons the Consultation Paper emphasises the importance and necessity of the 
increase of the integration of the Hungarian gas transmission network with regional and 
European networks in order to enable Hungarian customers to enjoy the benefits of higher gas 
liquidity in the trading of gas - in the form of a higher security of supply and lower gas prices. 

Implementation of development projects 

Before the implementation of any developments in the approved Network Development Plan, 
the license of the relevant network operator must be modified accordingly. All development 
works may only be started after the licence has been amended.112 

Failure to implement the approved Network Development Plan 

If the Hungarian ITO does not implement any network, development projects within the 
deadline specified in the Network Development Plan the Hungarian Regulator may issue an 
invitation for tenders for the implementation of the development in question.113 In such cases, 
the Hungarian ITO must duly cooperate with the winning investor.114 The Hungarian Regulator’s 
approval is required for all financing agreements, which are necessary for the implementation of 
any network development project.115 

Establishment of gas transmission lines by entities other than the Hungarian ITO 

Based on a modification of the Gas Act applicable since 14 November 2014116 entities other 
than the Hungarian ITO (Hungarians or non-Hungarians) may also establish gas transmission 
lines under an individual licence to be issued by the Hungarian Regulator117 (“Non-ITO 
Transmission Lines”). The developers of such Non-ITO Transmission Lines may be 
exempted118 from: 

• 
• 
• 

the general rules relating to the tariffs applicable to transmission lines; 
the mandatory access requirements applicable to transmission lines; and 
the unbundling requirements applicable to transmission lines. 

These exemptions may apply to the entirety or only a part of the Non-ITO Transmission Lines. 
These exemptions may only be granted if the following conditions are met119: 

• 

• 

• 

the new infrastructure increases competition in gas supply, the security of supply and 
the efficient operation of the gas network; 
the financial and economic risks associated with the new infrastructure are such that the 
network would not be feasible without the exemptions in question; 
the owner of the new infrastructure is a business organization which has no license to 
operate those networks to which the new infrastructure is connected; 

110   Page 29 of the Consultation Paper. 
111   Page 30 of the Consultation Paper. 
112   Section 83(4) of the Gas Act. 
113   Section 83/A(1) of the Gas Act. 
114   Section 83/A(3) of the Gas Act. 
115   Section 83/A(6) of the Gas Act. 
116   Section 3(1) of Act LIX of 2014 on the amendment of the Gas Act. 
117   Section 114(1)j) of the Gas Act. 
118   Section 85(1) of the Gas Act. 
119   Section 85(1) of the Gas Act. 

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• 
• 

a fee must be paid for the use of the new infrastructure; and 
the exemption does not have a detrimental effect on competition and to the efficient 
operation of the gas network or to the efficient operation of the transmission network or 
storage facility to which it is connected. 

If the Non-ITO Transmission Line is a cross-border infrastructure, the Hungarian Regulator must 
consult with the regulators of the affected countries.120 

The Hungarian Regulator must send its proposed decision on the above-mentioned exemptions 
to the European Commission.121 If the European Commission agrees with the proposed decision 
or does not react within 2 months the Hungarian Regulator may issue its decision as originally 
proposed. If the European Commission asks, the Hungarian Regulator to modify the conditions 
of the exemption the Hungarian Regulator must modify the decision accordingly.122 

The asset value of the Non-ITO Transmission Lines, which have received the above-mentioned 
exemptions, may not be taken into account for the calculation of the transmission network 
tariffs during the period of the exemption.123 

Undertaking of investments 

As indicated above, the Hungarian ITO is the entity in the Hungarian gas supply system, which 
coordinates the continuous supervision of capacities and the planning of network development 
projects. As indicated above, the ITO submits to the Hungarian Regulator the harmonized 
Network Development Plans for approval. The approved Network Development Plan sets out the 
individual development projects and the deadlines for their completion. Based on the approved 
Network Development Plan the Hungarian ITO is obliged to carry out the relevant investments. 
There are rules for the cases where the Hungarian ITO fails to comply with any of its 
development obligations: the Hungarian Regulator may issue invitations for tenders for the 
implementation of such network development projects. In summary, the undertaking of any 
investment projects by the Hungarian ITO are based on the Network Development Plans 
approved by the Hungarian Regulator. 

Role of NRA 

Transmission network owned by the Hungarian ITO 

The Hungarian Regulator’s role in connection with transmission network development is to 
annually review the Hungarian ITO’s Network Development Plans: to check these from the point 
of view of the applicable community-wide requirements and the requirements of Hungarian law. 

Developments failed by the Hungarian ITO 

As described above, if the Hungarian ITO fails to implement a development project approved by 
the Hungarian Regulator the latter may issue an invitation for tenders for the implementation of 
the failed project. In connection with such projects, the Hungarian Regulator may impose 
obligations upon the Hungarian ITO to make sure that the investor chosen in the tender is able 
to duly carry out the failed development. 

Non-ITO Transmission Lines 

As indicated above, under Section 114(1)j) of the Gas Act investors (Hungarians or non-
Hungarians alike) may apply for a licence to establish a gas transmission line within the 
Hungarian borders or cross-border and may even be granted certain exemptions from rules 
otherwise applicable to gas transmission networks if certain conditions are met. The Hungarian 
Regulator’s role in the case of such Non-ITO Transmission Lines is to check if they are in 
compliance with the strict rules of the Gas Act (described in detail in this Section 3.1.1 above), 
and if exemptions are granted, to have these approved by the European Commission. 

120   Section 85(2) of the Gas Act. 
121   Section 85(4) of the Gas Act. 
122   Section 85 (4)-(6) of the Gas Act. 
123   Section 85(8) of the Gas Act. 

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Institutional or procedural constraints on the performance of these roles 

There are no specific procedural constraints applicable to gas transmission network 
development projects. 

To the contrary, under Act LIII of 2006 on “projects of crucial interest to the national economy” 
the government may designate specific projects of crucial interest. The government issues 
separate decrees for the individual projects specifying the exceptional rules applicable to the 
project in question within the limitations of the act. The following investments may be 
designated as projects of crucial interest:124 

• 
• 
• 

• 

• 

• 

• 

• 

investments which are wholly or partially financed from EU funds; 
investments which are implemented wholly or partially with budget subsidies; 
investments which are based on agreements concluded for concession-based activities 
with a minimum cost level of 5 billion HUF; 
investments which are implemented wholly or partially with subsidies based on 
individual governmental decisions; 
investments with a minimum aggregate cost level of 90 million HUF which create at 
least 15 new jobs; 
investments which promote environmental, research-development, educational, or 
health care and social goals; 
investments relating to the maintenance, presentation or development of national 
memorial locations; or 
investments relating to primary national treasures and monuments. 

3.1.2. 

Specific legal rights and duties 

Hungarian transmission network 

As to the development of the Hungarian gas transmission network, we have described the rules 
applicable to this in the Hungarian Legal Framework. The Hungarian Legal Framework allocates 
the functions concerning the investment projects concerning the Hungarian gas transmission 
network to the Hungarian ITO and the Hungarian Regulator. 

In the case of complex transmission network development projects, the following “other parties” 
have certain roles under Hungarian law: 
•  Environmental authorities under the Environmental Permit Decree125 

reduce emissions to the lowest possible level; 

reduce all possible burdens on the environment; 

Under Section 17 of the Environmental Permit Decree, the applicant of an environmental 
permit must use the best available technical solutions in order to: 
- 
-  ensure that all materials and energy are used efficiently; 
- 
-  avoid the accumulation of waste; 
-  avoid incidents resulting in environmental impact; and 
-  prevent all contamination in the case of the stoppage of the activity under review. 
The best available practices must be checked under the reference documents issued by 
the European Commission. If no such document exists for the activity under review, the 
criteria specified in Annex 9 of the Environmental Permit Decree must be taken into account; 

•  The “interested public” under the Environmental Permit Decree 

The “interested public” under Section 2(1) of the Environmental Permit Decree means 
natural or legal persons or organizations without a legal personality, which may be affected 
by the decision of the environmental authority in the procedure under review. 
The “interested public” must be informed about all the details of the project subject to the 
environmental permit procedure. Public audiences must be held in certain cases specified by 
Sections 9 and 21 of the Environmental Permit Decree where the “interested public” may 
give its opinion on the project under review. These opinions are not obligatory but the 
environmental authority must consider them and analyse them in its decision on the 
environmental permit request; 

•  Environmental NGOs 

124   Section 1(1) of Act LIII of 2006. 
125   The environmental permit procedures are regulated by government decree no 314/2005.(XII.25.) 

Korm. 

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Under Section 98 of the Environment Protection Act,126 associations established for the 
protection of the environment (“Environmental NGOs”) have the status of a “client” in 
environmental permit procedures in the territory affected by their activities. This means that 
they may appeal decisions and may start litigation against the decisions of the environmental 
authorities; 

•  Cultural heritage authorities 

Under Sections 23/B-F of the National Heritage Protection Act127, in the case of “large 
investments” preventive archaeological exploration must be carried out. The definition of 
“large investments” is contained in Section 7(6) of the National Heritage Protection Act. 

Non-ITO Transmission Lines 

As indicated in “Role of the NRA” above, under Section 114(1)j) of the Gas Act, companies 
(Hungarians or non-Hungarians) may establish transmission network lines based on individual 
licenses issued by the Hungarian Regulator. The possible financing mechanisms of such projects 
are not regulated by the Gas Act but the cost structure of such investments must comply with 
the requirements explained in Section 3.1.1 above. 

Projects of common interest (PCIs) under the TEN-E Regulation 

The Hungarian Regulator and the Hungarian ITO are both bound by the TEN-E Regulation. This 
regulation sets up a specific institutional structure for the promotion of projects of common 
interest (PCIs). The TEN-E Regulation defines the “project promoters” in its Article 2(6), which 
contains “investors developing a project of common interest”. Such “project promoters” are not 
specified in the Hungarian Legal Framework among the players of the development of the 
Hungarian transmission network. Under the Hungarian TEN-E Methodology, it cannot be 
excluded that “project promoters” propose projects to the Hungarian Regulator. 

3.1.3. 

Mechanism for financing of investment projects 

Financing through transmission network use tariffs regulated by the Hungarian 
Regulator 

Under Sections 103(2)a) and 104(1) of the Gas Act the transmission network tariffs are tariff 
caps, which are specified by the Hungarian Regulator in tariff decrees (to be analysed in detail 
below). The Hungarian Regulator specifies the tariffs “ex officio”.128 The “tariff cap” means that 
higher tariffs than the tariffs specified by the Hungarian Regulator cannot be applied.129 
However, lower tariffs can be applied according to terms previously published and without 
discrimination.130 The network tariffs are regulated in 4-year tariff periods131 (analysed in detail 
below). The transmission network tariffs are the same throughout Hungary while distribution 
network tariffs are specified for each distributor individually 132. The principles of the 
transmission network tariffs under Section 105(4) of the Gas Act are the following: 

• 

• 
• 

• 

they must take into account the justified costs of the efficiently operating licensee 
(including capital costs); 
they must be based on the least cost principle133; 
they must motivate the licensees to increase (in the short and the long term alike) the 
efficiency of their operations; and 
they must motivate the licensees to continuously increase the quality of their services 
and the security of supply. 

The transmission network tariffs are specified annually.134 

126   Act LIII of 1995. 
127   Act LXIV of 2001. 
128   Section 104(4) of the Gas Act. 
129   Section 104(7) of the Gas Act. 
130   Section 104(8) of the Gas Act. 
131   Section 104/A(1) of the Gas Act. 
132   Section 105(2) of the Gas Act. 
133   “least cost” means under Section 3(48) of the Gas Act: the costs incurred by a licensee for the purpose 
of the licensed activity, which is necessary and justified both at the level of the licensee in question and 
at the level of the national economy. 

134   Section 104/B(1) of the Gas Act. 

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Under the general rules in Sections 104 and 105 of the Gas Act and also based on the 
delegation of authority in Section 133/A(1) of the Gas Act, the Hungarian Regulator issued the 
currently applicable gas network tariff decree under no 8/2016.(X.13)MEKH (the “Network 
Tariff Decree”). This Network Tariff Decree applies to a 4-year tariff-period between 1 January 
2017 and 31 December 2020.135 During this period, the gas network tariffs are set by the 
Hungarian Regulator on the basis of two main criteria136: (i) the least cost principle137 and (ii) 
the “justified costs”138 of the licensees. The “justified costs” are costs which are incurred in 
compliance with applicable law and the relevant entity’s licence (i) and which are actually 
necessary to continuously and securely carry out the licensed activity, (ii) and which are 
actually necessary for the operation of the company which carries out the licensed activity 
(only to the extent that this operation is efficient), including (for both categories), the capital 
costs as well. 

With regard to the amount of the tariffs, the Hungarian Regulator must take into account the 
tariffs applied in the previous tariff period and in the course of setting the annual tariffs, the 
Hungarian Regulator must endeavour to avoid significant changes from one year to another.139 

With regard to the amount of the tariffs, the Hungarian Regulator must also endeavour to 
achieve the following:140 

• 

• 

• 

• 

• 

• 

the network operators are encouraged to increase the efficiency of their activities 
(Section 3(3)a) of the Network Tariff Decree);141 
the network operators should become interested in complying with the minimum quality 
criteria specified by the Hungarian Regulator;142 
the network operators should be motivated to carry out the network developments 
which are necessary for a sustainable operation;143 
the network operators should not be interested in promoting the customers’ energy 
efficiency measures;144 
the network operators’ risks should not exceed the limit which is reasonable under the 
given economic circumstances;145 and 
the network operators should be able to make their business policy decisions with due 
foresight.146 

In order to set the tariffs applicable at the beginning of the tariff regulation period the 
Hungarian Regulator determines the justified costs of the individual network operators (“Initial 
Cost Analysis”).147  

During the Initial Cost Analysis, the following cost types must be analysed148: 

• 
• 
• 
• 

the operation costs (paragraph a); 
the amortization of equipment (paragraph b); 
capital costs (paragraph c); 
settlement difference149 (paragraph d). 

The tariffs applicable for the subsequent years of the 4-year period are specified with an 
effective date of the 1st of October each year. 

135   Section 1 of the Network Tariff Decree. 
136   Section 3(1) of the Network Tariff Decree. 
137   “least cost” means under Section 3(48) of the Gas Act: the costs incurred by a licensee for the purpose 
of the licensed activity, which is necessary and justified both at the level of the licensee in question and 
at the level of the national economy. 
138   Section 2(1) of the Network Tariff Decree. 
139   Section 3(2) of the Network Tariff Decree. 
140   Section 3(3) of the Network Tariff Decree. 
141   Section 3(3)a) of the Network Tariff Decree. 
142   Section 3(3)b) of the Network Tariff Decree. 
143   Section 3(3)c) of the Network Tariff Decree. 
144   Section 3(3)d) of the Network Tariff Decree. 
145   Section 3(3)e) of the Network Tariff Decree. 
146   Section 3(3)f) of the Network Tariff Decree. 
147   Section 9(1) of the Network Tariff Decree. 
148   Section 7(2) of the Network Tariff Decree. 
149   “settlement difference” under Section 9(6) of the Network Tariff Decree means differences resulting 

from metering and technological criteria. 

March 2019 I 33 

 
 
 
 
 
 
 
 
                                                 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

Under Section 104/B(2) of the Gas Act the Hungarian Regulator has issued a methodology on 
the calculation rules applicable to the Initial Cost Analysis and the calculation of the tariffs 
applicable in the subsequent years of the 4-year period. 

Financing from funds available in the “Connecting Europe Facility” (CEF) 

The government issued a decree under no 75/2016. (IV.5.) Korm. to implement the provisions 
of the TEN-E Regulation from the point of view of how the funds available in the CEF may be 
used (the “CEF Decree”). Under the CEF Decree, requests for funding from the CEF may be 
submitted to the European Commission on the basis of the government’s individual approval. 
The government gives such approvals in individual government resolutions published in the 
Official Gazette of Hungary. Under the CEF Decree, no individual government resolutions have 
yet been issued in connection with projects relating to the development of the gas transmission 
network. 

3.1.4. 

Regulatory rules with respect to innovation 

Specific duties of the TSO aimed at encouraging innovation 

The Hungarian ITO’s duties aimed at encouraging innovation are parts of its duties to harmonize 
the network development of the entire Hungarian gas network. The Hungarian ITO is obliged by 
law to submit regular network development plans to the Hungarian Regulator and once a 
network development plan is approved, the Hungarian ITO must implement it. 

Under the Consultation Paper, it is an elementary interest of the Hungarian ITO to develop the 
gas transmission network at the highest possible level in order to make it suitable for its 
integration with regional and European gas transmission networks. According to the 
Consultation Paper Eastern Europe’s gas, markets are not yet sufficiently integrated with the 
Western European gas transmission networks and this has a negative effect on gas prices in 
Hungary. Without such gas transmission network development, the beneficial effects of gas-gas 
competition cannot be enjoyed by Hungarian customers due to the still existing importance of 
oil-based gas price formulas in long-term gas trading contracts. Furthermore, this may also 
have a negative impact on the competitiveness of the Hungarian economy as a whole. 

Specific duties of the NRA aimed at encouraging innovation 

Hungarian transmission network 

The Hungarian Regulator has the power to approve and enforce the implementation of the 
Hungarian ITO’s Network Development Plans. The criteria to be applied by the Hungarian 
Regulator in connection with its duties concerning the Hungarian ITO’s Network Development 
Plans (described in Section 3.1.2 above) ensure that the Hungarian ITO’s network development 
plans must focus on innovation. For example, one of these powers of the Hungarian Regulator is 
that they may notify the Hungarian ITO to modify the Network Development Plan if it does not 
comply with the safety-of-supply goals specified by Hungarian law or the EU energy policy, or if 
it may detrimentally affect the national economy. As indicated above, by reference to the 
Consultation Paper, the entire Hungarian economy’s evident interest is to increase the 
integration of the Hungarian gas transmission network with the European gas transmission 
networks because such integration would, in the long term, result in lower gas prices and, as a 
result, higher competitiveness for the entire Hungarian economy. 

As mentioned above, the primary source of financing for the ITO’s transmission network 
development works through the transmission tariffs. 

As mentioned in Section 3.1.3 above, the transmission tariffs are specified by the Hungarian 
Regulator under strictly specified principles set forth in the Network Tariff Decree (analysed in 
detail above). 

Projects of common interest (PCIs) under the TEN-E Regulation 

Under Article 13(6) of the TEN-E Regulation the Hungarian Regulator has published its 
“methodology and criteria used to evaluate investments in electricity and gas infrastructure 
projects and the higher risks incurred by them” (the “Hungarian TEN-E Methodology”). 

We briefly describe the main terms of the TEN-E Methodology as follows. 

34 / March 2019 

 
 
 
 
 
 
 
 
 
 
 
 Do current regulatory frameworks in the EU support innovation and security of supply 
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Compliance with the Community-wide 10-year network development plan 

If it is doubtful, whether the Hungarian ITO’s network development plan is in compliance with 
the Community-wide 10-year network development plan under Regulation No 715/2009/EC150 
the Hungarian Regulator consults with the ACER151. If the Hungarian ITO’s network 
development plan is not in compliance with the above-mentioned Community-wide 10-year 
network development plan, if it is unlawful or if it restricts competition, the Hungarian Regulator 
may oblige the Hungarian ITO to modify the plan. If the Hungarian ITO does not comply with its 
obligations under the approved transmission network development plan the Hungarian 
Regulator may issue an invitation for tenders for the completion of the development, which the 
ITO refused to implement. 

Risk evaluation methodology 

General risk evaluation principles 
PCIs must promote the following economic goals: 
• 
increase of the security of energy supply; 
• 
increase of the reliability of the network; 
•  establishment of a European energy market. 

The Hungarian regulator examines the general supply-and-demand issues, the specific industrial 
criteria and the risks associated with the cooperation beyond national level. The primary task of 
the Hungarian regulator is to get to know the views of all the parties affected by the planned 
development. 

Specific risk evaluation principles 
The Hungarian regulator will examine the documents submitted by the “project promoters”. It is 
of primary importance that all information must be available to the Hungarian Regulator. The 
Hungarian Regulator may request additional information from the relevant “project promoters”. 
In the course of its evaluation of the risks associated with a proposed project the Hungarian 
Regulator gives primary importance to the following factors: 

• 
• 
• 
• 
• 
• 
• 
• 

overspending beyond the planned costs; 
reduction of planned turnover; 
liquidity risks; 
planning risks; 
financial risks; 
risks resulting from the completion or non-completion of other projects; 
technological risks; 
evaluation and exchange risks. 

It is also important for the Hungarian regulator that the “project promoters” must do their best 
to reduce the risks. 

All the risk factors must be considered individually indicating the likelihood of its occurrence and 
the financial impact. 

3.1.5. 

Regulatory rules with respect to security of supply 

Specific duties of the TSO aiming at safeguarding security of supply 

The Hungarian ITO coordinates the network planning activities for the entire Hungarian gas 
network. As indicated above, one of the reasons why the Hungarian regulator may request the 
Hungarian ITO to modify the Network Development Plan submitted for approval is if it does not 
comply with the requirements of security of supply either at a national level or in comparison 
with the energy policy of the European Union. Therefore, it is one of the Hungarian ITO’s 
primary duties to ensure that long-term security of supply in the gas sector is safeguarded 
through the continuous development of the transmission network (and the distribution network 
alike). 

150   Regulation (EC) No 715/2009 of the European Parliament and the Council of 13 July 2009 on conditions 

for access to the natural gas transmission networks. 

151   Agency for the Cooperation of Energy Regulators. 

March 2019 I 35 

 
 
 
 
 
 
 
 
 
 
                                                 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

Specific duties of the NRA aiming at safeguarding security of supply 

Hungarian transmission network: 

The Hungarian regulator’s main duties are related to the safeguarding of the security of supply 
for the entire Hungarian gas sector. Its relevant duties are as follows: 

• 

• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 

• 

• 

to ensure that all entities which carry out licensed activities comply with the applicable 
laws152; 
to promote an efficient and sustainable competition on the gas market 153; 
to ensure efficiency and the application of the least cost principle154; 
to maintain and increase the security of supply155; 
to ensure compliance with the goals of energy policy and sustainable development156; 
to inform the public157; 
to protect the interests of customers and licensees158; 
to prevent the abuse of monopolies and all activities which may restrict competition159; 
to protect the interests of customers by the efficient operation of a national market160; 
to protect of the interests of vulnerable customers161; 
to simplify the changing between traders162; 
to promote the establishment of a competitive, safe and sustainable national gas market 
within the European Union and, in order to achieve this, to participate in the 
establishment of efficiently operating regional markets163; 
to promote that the transmission network operator and the network users get sufficient 
incentives to increase the efficiency of the gas network for the purpose of market 
integration;164 
to carry out the duties specified in Regulation No 994/2010(EU)165 and the relating 
obligations specified by the government. 

European Projects of Common Interest (PCIs) under the TEN-E Regulation: 

The Hungarian Regulator has issued a methodology of the risk analysis related to electricity and 
gas PCIs. It is available at its website (www.mekh.hu) in Hungarian only. 

Institutional or procedural constraints on the performance of the TSO’s role 

3.1.6. 
There are no specific procedural constraints applicable to gas transmission network 
development projects. 

To the contrary, under Act LIII of 2006 on “projects of crucial interest to the national economy” 
the government may designate specific projects of crucial interest. The government issues 
separate decrees for the individual projects specifying the exceptional rules applicable to the 
project in question within the limitations of the act. The following investments may be 
designated as projects of crucial interest:166 

• 
• 
• 

• 

• 

investments which are wholly or partially financed from EU funds; 
investments which are implemented wholly or partially with budget subsidies; 
investments which are based on agreements concluded for concession-based activities 
with a minimum cost level of 5 billion HUF; 
investments which are implemented wholly or partially with subsidies based on 
individual governmental decisions; 
investments with a minimum aggregate cost level of 90 million HUF which create at 
least 15 new jobs; 

152   Section 126a) of the Gas Act. 
153   Section 126b) of the Gas Act. 
154   Section 126c) of the Gas Act. 
155   Section 126d) of the Gas Act. 
156   Section 126e) of the Gas Act. 
157   Section 126f) of the Gas Act. 
158   Section 126g) of the Gas Act. 
159   Section 126h) of the Gas Act. 
160   Section 126i) of the Gas Act. 
161   Section 126j) of the Gas Act. 
162   Section 126k) of the Gas Act. 
163   Section 126l) of the Gas Act. 
164   Section 126m) of the Gas Act. 
165   Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 

concerning measures to safeguard security of gas supply. 

166   Section 1(1) of Act LIII of 2006. 

36 / March 2019 

 
 
 
 
                                                 
 Do current regulatory frameworks in the EU support innovation and security of supply 
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• 

• 

• 

investments which promote environmental, research-development, educational, or 
health care and social goals; 
investments relating to the maintenance, presentation or development of national 
memorial locations; or 
investments relating to primary national treasures and monuments. 

3.2.  Regulatory practice  

Overview over regulatory practice in Hungary 

3.2.1. 
The general regulatory principle can be described as an Incentive-based Regulation containing a 
mixture of price cap, revenue cap and quality regulation. Analysing the legislation, (see 
Section 3.1) we have identified a strong emphasis on a least cost principle, which is unclear if 
this encourages or discourages innovation. 

Main regulatory barriers 

The interviewees were generally satisfied with the NRF regarding support of security of supply 
and ‘innovative’ projects. Some stakeholders see uncertainties of the acceptance of innovative 
projects and suggest introducing an incentive for innovation in tariff system to reduce the risk 
for uncertain acceptance of investments in innovative solutions. 

Possible improvement of the NRF 

From the interviews, the following improvements to the NRF could be derived: 

•  Reduce the risk for uncertain acceptance of investments in innovative solutions; 
• 

Eliminate CAPEX bias if the economically efficient choice of solutions is significantly 
distorted. 

3.2.2. 

Regulatory practice related to innovation 

Innovative projects and adequacy of the NRF relating to its support for these projects 

The legal response from Hungary states that the Hungarian jurisdiction has no direct but an 
implied duty to innovate due to the general statutory duties of operating in an efficient, 
economic and effective manner. Also, the NRA has no explicit statutory power to encourage 
innovation.  

Regardless of this, the interviewees note to undertake several innovative projects, e.g.: 

•  Bypass section with mobile compressors during maintenance; 
•  Usage of highly efficient heaters and heat exchangers at gas delivery stations. 

Yet, from analysing the legislation, one can conclude the following issue: In order to implement 
any gas investments in Hungary, the TSO requires their licence to be amended. This facilitates 
investment by allowing the NRA to impose time limits for completing investments directly on the 
TSO through their licence. This does, however, raise a potential indirect barrier to investment 
because the licence amendment must be completed before any works are carried out, which 
may cause delay. But, within the interviews, none of the stakeholders named this issue having a 
significant relevance in practice. 

Generally, no part of the TSO’s budget is labelled to innovation but a specific innovation 
allowance requested from the TSO in its PR4 price review was granted. 

According to the interviewees, no investments are held back but investments must be regarded 
as efficient to be approved by the NRA. If new ideas and projects are suggested by the TSO, the 
TSO faces the risk whether the NRA accepts the costs or not. Therefore, it could be considered 
to introduce an incentive for innovation in tariff system to reduce the risk for uncertain 
acceptance of investments in innovative solutions. Also, interviewees see the general risk of a 
bias towards CAPEX intensive solutions, but the stakeholders currently see no hinderance 
related to innovation. 

Despite this, there seem to be no relevant barriers in the framework, generally. 

3.2.3. 

Regulatory practice related to security of supply 

March 2019 I 37 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

Security of supply projects and adequacy of the NRF relating to its support for these 
projects 

One task of the TSO is to monitor capacity across the gas network to ensure security of supply. 
Also, the TSO is obliged to prepare and submit to the NRA for approval a development plan for 
the transmission system to guarantee security of supply for the following 10 calendar years. If 
the plan is non-compliant with security of supply goals or EU energy policy, contrary to law or 
restricts competition the NRA will request changes from the TSO. The plan is revised on an 
annual basis. Furthermore, the NRA checks the compliance against the EU-wide development 
plan. If an investment is regarded as “project of crucial interest to the national economy” and 
meets certain statutory criteria, it may be exempt from some administrative rules. 

Examples of security of supply projects, which are being conducted or planned, encompass: 
•  Strategic storage (2009), Storage under the control of ministry to supply valuable 

• 
• 

protected customers in times of crisis (under the impression of first Ukraine Russia gas 
crisis); 
PCI ROHUAT-interconnection; 
PCI Italian-Slovenian-Hungarian interconnector is under consideration to establish a first 
connection between Slovenia and Hungary; 
PCI Eastring: participation but leader is Slovakia; 

• 
•  Strengthening of internal grid parts (some kind of islanded parts) to cover decreasing 

imports from east; 

•  Only 2 connections without physical reverse flow but commercially not needed, so no 

actions taken. 

Interviewees see no urgent need for changes of the NRF because a mandatory regulation from 
EU exists that states what actions to take generally. Based on this regulation Hungary is 
developing an adapted security of supply regulation. Interviewees state that Hungary is in the 
middle of conception and implementation work. Key aspects of the regulation are, amongst 
others, mandatory storage obligations and the limitation of consumers demand in case of crisis. 
Therefore, no further improvement needs are deemed necessary. 

Illustrative specific projects 

3.2.4. 
The following projects are examples of successful innovative or security of supply projects and 
hence illustrate how the regulatory regime works in practice. 

No 6.23 of Annex VII to the TEN-E Regulation: specified as a “Project of Common 
Interest” by Commission delegated Regulation (EU) 2016/89  

6.23: Hungary-Slovenia interconnection: Nagykanizsa – Torniyszentmiklós (Hungary) 
– Lendava (Slovenia) – Kidricevo (Slovenia) (increase of security of supply and 
market integration) 

The purpose of the project is to interconnect the gas markets of Hungary and Slovenia. Slovenia 
is Hungary’s only neighbour which is not yet connected to the Hungarian gas transmission 
network. The length of the transmission line in Hungary is 41 km167. To assess cost and benefits 
the CBA method of PCI projects was applied. It is expected that the project will be refinanced by 
the regular tariff mechanism. Generally, the project did not benefit from any special regulatory 
treatment, but the usual least-cost-principle was applied. It was said that no regulatory barriers 
were noticed that might hinder an approval.  

No 6.24 of Annex VII to the TEN-E Regulation: specified as a “Project of Common 
Interest” by Commission delegated Regulation (EU) 2016/89  

“ROHUAT/BRUA” bidirectional gas transmission corridor (increase of security of 
supply and market integration) 

The purpose of the project is to enable a 1.75 bcm/a capacity in the first phase between 
Hungary and Romania and a 4.4 bcm/a capacity in the second phase along the entire length of 
the corridor. One of the purposes of this project is to ensure the transmission of Black Sea gas 
to Western Europe.168  
This project consists of 9 separate projects: 

167   (Consultation Paper, pages 6, 42). 
168   (Consultation Paper, pages 5, 40). 

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 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

6.24.1: Romanian-Hungarian reverse flow: 1st phase of the Hungarian section – compressor 
station at Csanádpalota; 
6.24.2: Development on the territory of Romania; 
6.24.3: Development on the Austrian side: compressor station at Mosonmagyaróvár; 
6.24.4: Development in Hungary: Városföld, Ercsi, Győr pipeline; 
6.24.5: Development in Hungary: Ercsi-Százhalombatta pipeline; 
6.24.6: Városföld (Hungary) compressor station; 
6.24.7: Expansion of the transmission capacity in Romania towards Hungary up to 4.4 bcm/year 
(2nd phase); 
6.24.8: Development in Romania (Black Sea shore); 
6.24.9: Romanian-Hungarian reverse flow: Hungarian section 2nd stage compressor station at 
Csanádpalota or Algyő (Hungary). 

To assess cost and benefits the CBA method of PCI projects was applied. It is expected that the 
project will be refinanced by the regular tariff mechanism. Generally, the project did not benefit 
from any special regulatory treatment, but the usual least-cost-principle was applied. It was 
said that no regulatory barriers were noticed that might hinder an approval. 

No 6.25 of Annex VII to the TEN-E Regulation: specified as a “Project of Common 
Interest” by Commission delegated Regulation (EU) 2016/89  

“EASTRING” Pipeline system from Bulgaria to Slovakia (increase of security of supply 
and market integration) 

The track of the pipeline is optional: it will start either at the border between Bulgaria and 
Turkey or at the border between the Ukraine and Romania, it goes through Romania and 
Hungary, and ends at Velke Kapusany (Slovakia). The entire length of this “eastring” pipeline 
would be approximately 832-1015 km. The purpose is to establish bidirectional capacities at 
each border connection point. The capacity of this pipeline would be 20 bcm/a in the first phase 
and could reach 40 bcm/a in the second phase. The Hungarian section of the “Eastring” would 
be established between Csengersima (at the Hungarian-Romanian border) and Zemplénagárd 
(at the Hungarian-Slovakian border). The length of this Hungarian section would be 
approximately 102-112 km169. To assess cost and benefits the CBA method of PCI projects was 
applied. It is expected that the project will be refinanced by the regular tariff mechanism. 
Generally, the project did not benefit from any special regulatory treatment, but the usual least-
cost-principle was applied. It was said that no regulatory barriers were noticed that might 
hinder an approval.  

3.3.  Options for improvement 

Options to improve regulatory practice 

3.3.1. 
The above discussion shows that the NRF is well-designed and functional for both security of 
supply and innovative projects: there is flexibility to include extra funding within one regulatory 
period and an innovation allowance has been set up for the current regulatory period. A concern 
is, however, that projects having wider societal benefits are not incentivized. Furthermore, the 
lack of a mandate for innovative projects on part of the regulator and limited funding for 
innovation are seen as issues. 

(i) 

Favouring of OPEX-based solutions 

Generally, the NRF is considered adequate in supporting investments in security of supply and 
some kinds of innovative technologies. Currently, there are no indications that the 
implementation practices provide inadequate incentives to ensure security of supply. Also, a 
number of innovative technologies are used in recent projects. Respondents point out there 
might be a bias towards CAPEX-solutions. If this bias develops a significant distortion for the 
choice of solutions that becomes economically relevant, specific incentives could be introduced 
for these kinds of OPEX-based solutions, which have been identified as advantageous or 
necessary. 

(ii) 

Statutory obligation to consider alternatives 

A more general approach to foster OPEX-based solutions in the long-term, i.e. beyond a single 
regulatory period, would be the introduction of an obligation to consider OPEX-related 
innovative options in the network development plan. The TSO would then have to provide 

169   (Consultation Paper, page 41). 

March 2019 I 39 

 
 
 
 
 
 
                                                 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

OPEX-based options as alternatives to CAPEX-based projects outlined in the network 
development plan. This approach necessitates that a framework is developed determining when 
OPEX-based solutions should be favoured over CAPEX-based solutions. This approach should be 
coupled with monetary incentives (like option (i)) for the TSO to invest in OPEX solutions to 
counteract the CAPEX bias. 

(iii) 

Statutory reference to innovation 

There are no statutory powers or duties aiming at encouraging innovation. To reduce the 
uncertainty as to whether or not an innovative project will be approved and to ensure that 
innovative projects are still encouraged and supported in the next regulatory period, a statutory 
reference to innovation could be included into the regulatory framework. This long-term 
strategic perspective could be shaped by governmental policies, statutory duties or could be 
included in the TYNDP. 

National law mechanism(s) for implementing options 

3.3.2. 
We consider that, with the exception of the following, the above-mentioned changes could be 
implemented using legal powers already available to the NRA or others under the existing NRF. 

As regards option (ii) (statutory obligation to consider alternatives), we understand that the 
legal mechanism for implementing this option would involve the modification of the Gas Act 170 
(by including the general obligation for the Hungarian ITO to consider such alternatives) and the 
Network Code171 (where the detailed rules could be incorporated). 

Turning to option (iii) (statutory reference to innovation), we expect that this could be 
implemented by a reference to innovation as a general policy goal in the Gas Act172. 

Impact assessment 

3.3.3. 
Option (i) is not easy to implement in a well-balanced manner. This option risks being be a 
technology-specific incentive, which may not necessarily lead to efficient decisions and may 
even encourage abuse. Also, any innovative and socially beneficial OPEX solutions to be 
favoured by the regulation need to be defined. Such projects would need to be redefined for 
each regulatory period, possibly in cooperation with the TSO and maybe including a stakeholder 
consultation in order to ensure technology neutrality. Therefore, depending on the specific 
implementation the effort for the NRA and the TSO can be high. Additionally, adequate 
incentives for efficiency must be set to avoid abuse. 

The long-term strategic perspective on innovation mentioned in option (iii) necessitates efforts 
and coordination between the TSO and the NRA regarding the design of this long-term 

170   Under Section 6(1) of the Hungarian Constitution, the modification of an Act of Parliament (such as the 

Electricity Act) may be proposed by the president of Hungary, by the government, by a Parliamentary 
committee or by any member of Parliament. Resolution of Parliament no. 10/2014. (II. 24.) Ogy. 
contains the detailed rules of the adoption of an act of Parliament in Hungary (the “Parliament 
Rules”). Under the Rules of Parliament, the debate process consists of two main parts: (i) the general 
debate, which relates to the necessity and the main principles of the proposal and (ii) the detailed 
debate, which opens on the week following the closure of the general debate. If Parliament votes in 
favour of the proposal and its review by the Constitutional Court is not requested, the President of 
Parliament must send the adopted act to the President of Hungary for signature. If the President of 
Hungary agrees with the act and does not want to have it reviewed by the Constitutional Court he must 
sign it within 5 days. If he does not agree with the act he may send it back to Parliament for 
reconsideration once. In this case, Parliament must re-consider the act and may modify it or adopt it 
again without any changes.  

171   Under Section 110 of the Gas Act, it is the Hungarian ITO’s duty to prepare the Network Code. Under 

Section 110(2) of the Gas Act, the Hungarian ITO must take into account the opinion of the “regulatory 
committee” (in Hungarian: “szabályzati bizottság”). The Hungarian ITO must annually review the 
Network Code and must obtain the regulatory committee’s opinion for such a review. Proposals for the 
modification of the Network Code, together with the regulatory committee’s opinion, must be submitted 
to the Hungarian regulator for approval by 31 May every year. Sections 116-117 of the Gas Decree 
contains the main rules of operation of the regulatory committee. Under Section 117(1) of the Gas 
Decree, the Hungarian ITO must convene the regulatory committee before September 30 every year. 
All minutes of the meetings of the regulatory committee must be sent to the Hungarian Regulator. All 
modifications of the Network Code become effective with the approval of the Hungarian Regulator. 
Under Section 110(6) of the Gas Act, after approval by the Hungarian Regulator, the Hungarian ITO 
must publish the modified (consolidated) version of the Network Code and the Hungarian Regulator’s 
approval on its website. 

172   See footnote 165. 

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 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

perspective (e.g. the organisation of stakeholder consultations, determining the scope of the 
innovation needed, monitoring and evaluating of how the statutory duty is translated into the 
long-term perspective).  

We have not encountered any specific examples of projects that have been cancelled due to the 
regulatory framework. For this reason, we do not expect that any of the suggested changes will 
result in considerable changes to investment levels. Yet, if the perceived risk of innovative 
projects is lowered and a long-term strategic perspective on innovation could be attained, the 
share of innovative projects is expected to increase. Moreover, if implemented well, option (i) 
could result in a shift from primarily CAPEX investments to more OPEX investments. 

March 2019 I 41 

 
 
 
 
 
 
 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

ANNEX I: TYPOLOGICAL INVESTMENTS – ELECTRICITY 

Generally, the term typological investment relates to technical solutions that TSOs can adopt to 
provide the transmission capacities needed to cover the transmission demand of grid users. 
Thus, a typological investment is meant to be a type of solution that can be implemented, in 
principle, by any TSO in situations in which these solutions are appropriate to provide the 
desired benefit. Hence, typological investments are not specific to a concrete location or a 
particular TSO. In the following, we have listed a selection of typological investments for the 
electricity transmission sector, that are differentiated in 7 categories that can be considered 
innovative as compared to conventional solutions. For each of these categories we have 
provided a number of examples of solutions, based on our existing knowledge, a literature 
review and interviews. The list might not be completely comprehensive, but should give an idea 
of our understanding of the different types of typological investments, we are interested in.  

Category 
New transmission lines based on innovative 
technology or change of technology of 
existing lines 

Introduction of dynamic capacity rating with 
the aim of utilising existing transmission lines 
or transformers at higher levels 

Installation of power flow control components 
in order to better adapt power flow patterns 
to capacities and topology of the existing 
grid. 
Investment into components contributing to 
ancillary services provision (reactive power / 
voltage control, short-circuit power, 
momentary power reserves and black-start 
capability) 
New or extended power system control and 
automation technology with the aim to lower 
the risk of disturbances threatening security 
of supply 

Examples of solutions 
•  New HVDC lines (allow to control the 
power flow; less expansive for long 
distance transport; undergrounding less 
complex); 

•  Replacement of HVAC by HVDC lines 

(less complex and less expensive; more 
compact design); 

•  Underground cables or GIL ( more 
expensive than OHL but can help 
improving public acceptance and 
accelerate the authorisation process); 
•  Design of overhead line poles (can help 

improving public acceptance and 
accelerate the authorisation process); 
•  Replacement of conventional overhead 
line conductors by high-temperature 
conductors (more expensive than 
conventional ones but can allow to provide 
additional capacity at a lower cost level 
and more quickly than by building 
completely new lines). 

Spectrum of technological options ranging 
from a differentiation of rating levels 
according to fixed time intervals (e.g. 
seasonal or time-of-day) down to online 
monitoring of equipment temperature and 
adaptation of capacity rating in real-time 
operation. 
•  Phase-shifting transformers; 
•  Semiconductor-based FACTS elements 

(including HVDC converters). 

•  Purely phase-shifting generators (offer 
operational flexibility and can serve to 
improve cost efficiency); 

•  FACTS elements ( see above). 

• 

Improvements in observability and 
controllability based on conventional 
sensor and actor devices; 

•  Wide-area measurement systems (aiming 
at synchronously measuring power phasor 
angles at the grid nodes to improve 
observability); 

•  Real-time dynamic security assessment 
tools (aiming at observing stability 
phenomena beyond static voltage/current 
measurements). 

March 2019 I 43 

 
 
 
 
Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

Category 
Partial automation of system operation 
processes aiming at better utilisation of 
existing grid capacities 

Improvement of approaches to curative 
congestion management providing the 
possibility to operate systems closer to their 
technical limits and/or to improve security of 
supply 

Examples of solutions 
Automatic switching of network devices (in 
connection with adaptive protection schemes) 
or of generation-side or demand-side 
flexibilities in case of grid component outages 
in order to reduce the demand for (n-1) 
capacity reserves. 
•  Generation-side flexibilities (especially 

renewables); 

•  Demand-side flexibilities (DSM/DR); 
•  Storage components; and 
•  Technologies coupling the electricity 
sector with other sectors (gas, heat, 
traffic). 

44 / March 2019 

 
 
 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

ANNEX II: TYPOLOGICAL INVESTMENTS – GAS 

Typological investments are meant to be those type of investments whose aim is to promote 
innovation in the gas transmission systems while ensuring or enhancing the level of security of 
supply of a region. Hence, by definition, they can be implemented independent of a specific TSO 
and location.  

In the following table, we offer a resume of the typological investments for the gas transmission 
system we have deemed as innovative compared to “conventional” solutions.  

The investments are broken down into four categories each accompanied by examples that 
emphasise their importance and impact on the gas system.  

Category 
Increased need for flexibility for market 
development and security of supply. 

Examples of solutions 
• 

(Power-to-gas) Usage of excess pipeline 
capacity as “energy” storage of excess 
wind or solar energy by utilizing 
electrolysis (an efficient utilization of the 
excess of electricity produced by non-
programmable sources of energy);  
Increase withdrawal and injection capacity 
in storages by incentivising investments 
supporting flexibility (support of gas 
market liquidity and security of supply 
level); 

• 

Incentivise and facilitate upgrade of biogas to 
the transmission system. 

Digitalisation of operations, through e.g. 
drone inspections and artificial intelligence 
(AI), resulting in a safer and cost-efficient 
operation. 

In order to support security of supply and 
add liquidity to the gas market, there is a 
need to build interconnectors in Europe. 

• 

•  Allowance of higher pressure in selected 
pipeline/routes (increase of flexibility of 
the supply side). 
Investments in upgrade of biogas to 
transmission system (support of gas 
market liquidity and security of supply). 
•  Drone inspections and AI in combination 

with modern SCADA systems can serve as 
input to reliability based operation and 
maintenance (lower maintenance cost and 
reduction of unforeseen/unplanned 
shutdowns). 

•  More reverse flow systems could be 

considered to increase flexibility in the 
supply routes (reduction of dependency 
and power of trading of the large gas 
suppliers); 

•  Enhancement of available gas supply in 

situation of supply crisis; 
•  possibility of arbitrage a price 

convergence between markets to support 
the development of the internal market. 

March 2019 I 45 

 
 
 
 
 
 
 
 
 Do current regulatory frameworks in the EU support innovation and security of supply 
in electricity and gas infrastructure? 

ANNEX III: POTENTIAL REGULATORY BARRIERS FOR PROJECTS 

Regardless of the character of a project (e.g. projects enhancing security of supply or applying 
innovative technologies, which this questionnaire is focussing on) there might be potential 
regulatory barriers for implementing projects in general but maybe also barriers for special kind 
of projects. To give you an impression what kind of barriers we have in mind, we have listed 
some examples of such barriers in the following. It should be noted that there might be different 
or even more or less barriers in the regulatory framework of your country.  

Type 
Higher TSO CAPEX but lower expected OPEX 
within the TSO 

Higher TSO CAPEX, but benefits go to the 
wider society, instead of the TSO 

Investments in smart grid elements 
/technology aimed at replacing planned grid 
investments 

Investments in security of supply – projects 
without commercial benefits 

Lower TSO TOTEX but shift in the 
CAPEX/OPEX ratio 

Description/Explanation 
the investment upfront is more costly, but 
has a potential of lowering the operational 
costs in the future. However, because of its 
innovative and more risky character the 
lower OPEX is not guaranteed. If not allowed 
to put the costs in case of a failure in the 
tariffs, TSO would not invest in innovative 
solution. 
This is a situation where higher investment, 
including in new technologies, is needed on 
the part of a TSO but benefits in terms of 
RES integration, RES curtailment or CO2 
avoidance benefit other players in the 
society, while the TSO is only faced with the 
cost increase. Projects in regulatory 
frameworks, which do not distribute 
adequately the benefits to the TSO that bears 
the costs and takes the risk, are less likely to 
happen. This could also apply to cross-border 
investments involving several TSOs. 
Investments in smart grids and other smart 
elements that actually reduce the need of 
physical construction of lines for example due 
to a better interactive/intelligent grid 
management of balancing tools (battery 
storage) may provide a reduction in the 
regulated asset base, however with a slight 
increase of tariffs, might not be realised. 
Projects that ensure security of supply will in 
some cases never bring enough commercial 
benefits such as a pipeline would be going to 
be used only in case of emergency. If the 
security of supply (e.g. diversification of the 
sources for gas) is not put into tariffs, a TSO 
is most likely not willing to invest. 
In some member states CAPEX and OPEX are 
treated differently in the regulatory regimes. 
Depending on the incentives set by doing so, 
technical solutions/projects with higher 
CAPEX might be preferred by the TSOs even 
if they result in higher total costs. 

March 2019 I 47 

 
 
 
 
 
 
 
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doi: 10.2833/776860